Quebec-based grocer Metro reports higher Q1 profits; boosts dividend – Metro US

Quebec-based grocer Metro reports higher Q1 profits; boosts dividend

MONTREAL – Canadian grocery giant Metro Inc. (TSX:MRU.A) is planning to introduce its own loyalty card in Quebec as part of a strategy to mine consumer spending patterns to boost sales.

The Montreal-based grocer will stick with Air Miles in Ontario, but can’t use the coalition card in Quebec because of its association with IGA stores in that province.

“We’re working hard to see how we can put that in place,” CEO Eric La Fleche said of the loyalty card Tuesday during a news conference after the company’s annual general meeting.

“We’re shooting for something in 2010.”

He said the company needs such a card to leverage the full potential of its joint venture with British consulting and marketing services agency Dunnhumby.

Metro hopes to gain an advantage in the intensely competitive industry by using the shopping patterns of its loyal customers to convince them to increase their purchases at Metro, Super C and Food Basics stores.

“It’s easier for us to increase our sales by growing the purchases of our existing clients than search for a client elsewhere. It’s retail 101,” La Fleche told reporters.

The grocer has no plans to partner with Alimentation Couche-Tard (TSX:ATD.B) for its loyalty card even though it owns an equity stake in the convenience store operator. Metro’s share of Couche-Tard’s earnings were $10.8 million in the quarter.

Metro said it is also looking at adding smaller versions of its large Super C discount stores in Quebec as the market warrants. It introduced four such stores last fall.

Metro shareholders were given some pretty good news to chew on Tuesday as the grocer said it was increasing its dividend for the 15th consecutive year after reporting that profits soared in the first quarter.

The company’s quarterly dividend will increase 24 per cent to 17 cents or 68 cents per year.

Metro said its profits grew to $98.1 million, or 91 cents a diluted share for the quarter ended Dec. 19, up from $81.1 million or 73 cents per diluted share in the same period a year earlier.

Sales in what was the company’s first quarter of its financial year hit $2.65 billion, up from $2.6 billion a year ago.

Metro managed to increase overall sales despite deflation in some product categories such as produce, caused in part by the higher Canadian dollar.

“The economic environment remains challenging with high unemployment and we expect consumers to remain prudent,” La Fleche he told a conference call with analysts.

“We also expect to cycle out of this deflationary environment sometime in the second half of the calendar year.”

Same-store sales for outlets open a year were flat.

La Fleche said the competitive landscape remains unchanged, although Wal-Mart (NYSE:WMT) opened some new stores in Ontario.

Overall, he was pleased with the results, even though Metro’s customer basket size was smaller.

“We are generally satisfied with our results in a difficult context with normal ferocious competition,” said La Fleche, whose compensation totalled $3.4 million last year.

Excluding a one-time, $10-million tax decrease and non-recurring costs to convert its Ontario supermarkets to the Metro banner, net earnings were $88.7 million, up 5.5 per cent from last year.

The company and its franchisees forecast $250 million in capital expenditures this year, down from $376 million in 2009 when Metro expanded and renovated its Ontario stores.

Irene Nattel of RBC Capital Markets said the quarterly results exceeded expectations. The adjusted profit of 81 cents was better than the analyst consensus of 76 cents.

She said the strong results compared favourably with last year, when inflation fattened the top line.

Metro said it continues to eye expansion in Western Canada but hasn’t seen any opportunities yet to pursue.

“As it has been said for many years, we’re on the lookout for good acquisitions because we have the balance sheet to make them and we have the team to integrate them,” La Fleche said.

On the Toronto Stock Exchange, Metro shares nearly matched a 52-week intra-day peak before losing some ground in afternoon trading. Shares were up 85 cents, or 2.15 per cent, at $40.

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