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(Reuters) - Shares of Canada's Metro Inc (MRU.TO) slipped on Tuesday after the supermarket and drugstore chain warned of tough economic conditions and rising competition, despite reporting higher quarterly profits.
The chain, which is bracing for the opening of the first Target Corp (TGT.N) stores north of the border this spring, posted higher earnings on rising sales and profit margins. It pointed out that the timing of its fiscal first quarter ended December 22 flattered the results. Unlike the comparable quarter a year earlier, the latest period included most of the final week of the Christmas shopping season.
Shares of Metro, which operates more than 600 food stores and more than 250 drugstores in Canada, slipped more than 1 percent even though Metro announced a 16 percent increase in its quarterly dividend after the market closed on Tuesday.
In a statement accompanying the results, Chief Executive Eric La Fleche said the current economic environment was "challenging" and consumers were cautious.
Along with rivals such as Loblaw Cos Ltd (L.TO), Metro is facing rising competition as Wal-Mart Stores Inc (WMT.N) expands its grocery offerings in Canada. Target Corp (TGT.N), the No. 2 U.S. discounter, will also sell groceries when it begins opening its first 124 Canadian stores in March or April.
Metro's net earnings rose to C$121.4 million ($120.9 million), or C$1.23 a share, from C$103.7 million, or C$1.01, a year earlier. Sales rose 2.7 percent to C$2.70 billion.
Analysts had expected earnings of C$1.15 on sales of C$2.76 billion, according to Thomson Reuters I/B/E/S.
Sales at established stores, an important indicator for retailers, rose 1.5 percent in the fiscal first quarter.
Late on Monday, the Montreal-based firm declared a dividend of 25 Canadian cents a share, up from 21.5 Canadian cents last quarter.
Last week, Metro said it would sell nearly half its stake in Alimentation Couche-Tard Inc ATDb.TO, a convenience store and gasoline station operator, for nearly C$479 million.
Safeway Inc's SWY.N stock jumped after the announcement, as investors bet that Metro might consider buying the U.S.-based grocery chain's Canadian operations.
But Tuesday's release offered no information on how Metro might use the proceeds from the sale of the Couche-Tard stake.
In its initial statement, La Fleche said Metro made the decision based on Couche-Tard's market value. The stock had risen more than 60 percent over 12 months.
"We are evaluating opportunities for the use of proceeds, including investments for growth and returns to shareholders," he said at the time.
Metro's stock was down 1.3 percent at C$63.32 on Tuesday afternoon on the Toronto Stock Exchange.
Reporting by Allison Martell; Editing by Gerald E. McCormick, Leslie Gevirtz and Andrew Hay