Metro posts better-than-expected Q3 results

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The Quebec supermarket chain Metro Inc. grew its profits by 18.5 per cent in its third quarter, expecting food sales will keep rising amid a pandemic-induced resurgence in home cooking.

Metro’s total revenues grew by 11.6 per cent, to $5.8 billion, in the quarter, ended July 4, quadrupling its online grocery sales and boosting earnings to $263.5 million, compared to $224.4 million a year ago, Metro reported on Wednesday.

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A day before the better-than-expected results were announced, Metro’s board of directors declared a dividend of 22.5 cents per share, “an increase of 12.5 per cent over the dividend declared for the same quarter last year,” Metro chief executive Eric La Flèche wrote in a report to shareholders.

The dividend represented an increase over the third quarter of 2019, but Metro first raised its dividend to 22.5 cents per in its first quarter of 2020 in January, before the pandemic started.

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Notably, Metro competitor Empire Co. Ltd. — Sobeys’ parent company — drew criticism during a recent parliamentary committee hearing for similarly raising its dividend shortly after removing pay premiums for front-line staff.

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Metro’s costs related to the coronavirus pandemic during the quarter totalled $107 million, half of which went towards temporary $2/hour pay increases. Metro — along with its competitors Loblaw Companies Ltd. and Empire — drew significant scrutiny for cancelling the wage bonuses on the same day, June 13.

La Flèche, along with the top executives from Loblaw and Empire, were summoned to testify in front of a House of Commons committee about the cancellations, which led a Liberal MP to call on the Competition Bureau to investigate.

But on Wednesday, Metro said it had not been contacted by the Competition Bureau and was not aware of any investigation into the pandemic pay premiums — echoing comments made by Loblaw president Sarah Davis on a recent earnings call.

Competition Bureau spokesperson Marcus Callaghan on Wednesday wouldn’t confirm whether there was an investigation, since the bureau is “required by law to conduct its work confidentially.”

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In the House of Commons hearing last month, La Flèche said he made calls in May and June to his counterparts at Loblaw and Empire to ask if they were planning to cancel the bonuses and was told neither had made a decision. Empire chief executive Michael Medline said he asked his general counsel to join the call with La Flèche and declined to speak about the pay premiums. All three grocers denied any wrongdoing.

La Flèche told the committee his calls to competitors were in “perfect compliance” with the Competition Act.

Liberal MP Nathaniel Erskine-Smith, however, has said he believes enough evidence came out during the committee meeting to warrant a Competition Bureau investigation. In an interview last month, Erskine-Smith said that, if the bureau didn’t find reason to investigate, he would explore changing Canadian competition laws.

“If the Competition Bureau is of the view that they aren’t going to proceed with an investigation because our laws are not fit for purpose with respect for wage fixing, then we have to have a different conversation internally with the minister to say, ‘How do we fix these laws?’” Erskine-Smith told the Financial Post last month.

On Wednesday, Erskine-Smith confirmed he was planning on following through, saying in an email that he was “working on a brief that compares our weak laws against wage fixing with the much stronger competition laws in the United States,” and raising the issue with Industry Minister Navdeep Bains’ office.

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“It’s still in the initial stages of advocacy,” he said.

Metro’s online sales increased by 280 per cent in the quarter, compared to last year. The massive growth — a common effect of the pandemic on the grocery sector — has led the chain to significantly accelerate its e-commerce plan, adding more “hub stores” in Quebec and Ontario to act as delivery fulfillment centres and planning to increase its number of stores providing click-and-collect service by 30 in fiscal 2021.

“We expect that in the short-term food revenues will continue to grow at higher-than-normal rates versus last year as a portion of restaurant and food service sales continue to transfer to the grocery channel,” Metro said in an earnings report, adding its same store sales increased about 10 per cent in the first four weeks of its fourth quarter.

Metro’s competitors have also been accelerating their e-commerce business after major swings toward online grocery shopping, with Sobeys pushing up the launch of its Voila platform earlier this summer and Walmart Canada announcing a $3.5-billion modernization plan, part of which will expand its online grocery capabilities.

The investment has resurfaced simmering tensions between grocers and their suppliers in Canada, after Walmart told its suppliers it would charge them more fees as a way of covering some of the costs — 1.25 per cent on the cost of goods sold to the retailer, plus an additional 5 per cent for the e-commerce channel.

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Shortly after Walmart informed its suppliers of the new fees, United Grocers Inc. — a national procurement service that buys products on behalf of a network of supermarkets, including Metro — told its suppliers that it expected similar treatment.

La Flèche said the UGI letter was “standard fare.” When retailers hear their competitors asking for better deals, “we try to make sure we’re treated equitably,” he told investors on a Wednesday conference call. “That’s the only purpose of that letter. It’s no threat. It’s no official demand, other than to say we need to be treated fairly and equitably versus other retailers. That’s all I have to say.”

Financial Post

Note: Metro Inc. declared a dividend of 22.5 cents per share on Aug. 11, which it said represented a year-over-year increase of 12.5 per cent. The company first raised its dividend to 22.5 cents in January, before the onset of the pandemic in Canada, so this week’s dividend did not represent an increase over the previous two quarters. Incorrect information appeared in an earlier version of this story.