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TORONTO (Reuters) - Higher sales helped drive up profits at two of Canada's largest grocers, Loblaw Cos Ltd (L.TO) and Metro Inc MRUa.TO, even as the specter of competition from big U.S. discounters hangs over the sector.
Canadian grocers are under pressure as Wal-Mart Stores Inc (WMT.N) expands its grocery offerings in the country. With Target Corp (TGT.N) opening its first Canadian stores in 2013, competition is set to heat up further.
Metro said it ran aggressive promotions in the quarter to stay competitive.
"You have to be there on promo," Metro Chief Executive Eric La Fleche said on a conference call. "It's a fact of this market, with the discount square footage being added."
Loblaw's retail sales rose 2 percent while sales at established stores, a key measure for retailers, rose 1.3 percent. Metro's sales rose 3.8 percent, and same-store sales climbed 3.2 percent.
Cost controls also helped Loblaw boost its quarterly profit. Results at Canada's biggest grocery chain also benefited from a C$14 million gain from the sale of a property in North Vancouver, a decrease in net interest expense and a lower effective tax rate.
The company, which is in the middle of a multi-year program to improve productivity, said investments in its supply chain will hurt operating income in future quarters.
On a conference call, the company said spending on the project will peak in 2012 and new technology will be rolled out to all stores by 2014.
Desjardins Securities analyst Keith Howlett said the investment should have an impact.
"New tools should improve management's flexibility to make timely and more precise adjustments in response to changing market conditions," he wrote in a research note.
Loblaw's earnings for the quarter ended October 8 rose to C$236 million ($230 million), or 84 Canadian cents a share, from C$197 million, or 71 Canadian cents, a year earlier.
Analysts, on average, had expected earnings of 85 Canadian cents a share, according to Thomson Reuters I/B/E/S.
During the quarter, Metro closed a meat processing plant in Montreal and a warehouse in Toronto to improve operational efficiency, incurring C$20.2 million in closure costs.
Excluding those costs, adjusted earnings in its fourth quarter ended September 24 rose 7.5 percent to C$100.4 million.
Metro's net income dropped to C$86.1 million, or 84 Canadian cents a share, from C$93.4 million, or 88 Canadian cents, the year earlier.
Shares of Loblaw were down 1.3 percent at C$37.87 while Metro was up 1.7 percent at C$50.34 early Wednesday afternoon on the Toronto Stock Exchange.
Reporting by Allison Martell; editing by Peter Galloway and Rob Wilson