August 7, 2008 / 11:48 AM / 10 years ago

Metro Inc boosts profit, plans C$200 million makeover

OTTAWA (Reuters) - Completion of a computer system overhaul helped lift third-quarter profit at Metro Inc MRUa.TO and clear the way for a C$200 million makeover, Canada’s No. 3 supermarket chain said on Thursday.

The company will consolidate its five Ontario food banners under the Metro name to try to boost efficiency and spark growth. After its big A&P chain purchase in 2005, Metro said it would consider plans for its store banners, but first needed to finish complex computer system integration.

With that work done and armed with results from market research, Metro said it will start work in September to renovate stores, offer a wider and improved range of food products, and launch a new marketing campaign.

“This will be good for our sales, good for our margins, and good for our customers,” Chief Executive Eric La Fleche told Reuters in an interview.

“It’s not responding (to competition). It’s the right time to move forward and improve our stores.”

Metro, whose quarterly profit rose 3.7 percent and bettered expectations, said the 15-month facelift for its Dominion, A&P, Loeb, The Barn and Ultra stores will create a network of 376 Metro stores, and Ontario’s largest single food store banner.

The company said its profit rose to C$92.6 million, or 82 Canadian cents a share, from C$89.3 million, or 77 Canadian cents a share, in the same period last year.

Analysts had expected a profit of 76 Canadian cents a share before items, according to Reuters Estimates.

Management credited a strong performance in Quebec, cost control and improvements in Ontario where it resolved the issues its new information systems.

Revenue rose to C$3.37 billion from C$3.34 billion, slightly lagging analysts’ average estimate of C$3.39 billion.

Sales at stores open for at least one year rose by 0.5 percent.

The results included a C$1.7 million gain from Metro’s investment in Alimentation Couche-Tard (ATDb.TO), North America’s second-biggest operator of convenience stores. That is down from C$3.9 million in the same period last year.

Earnings before interest, tax, depreciation and amortization rose to C$207 million, or 6.1 percent of sales, from C$195.9 million, or 5.9 percent of sales.

The company’s shares were up C$1.33, or 5.2 percent at C$26.77 on the Toronto Stock Exchange by early afternoon.

Metro, which also has an extensive store network in Quebec, said sales for the first three quarters of this year have been hit by strong competition in Ontario.

“The marketplace continued to be challenging in Q3 and the pricing environment in both markets could be qualified as stable — competitive, but with less extra promotional activity such as three-day sales,” La Fleche said on a conference call.

Metro and other Canadian grocers have been cutting prices to retain customers, a strategy that sector leader Loblaw Cos (L.TO) started to compete with Wal-Mart (WMT.N).

In late July, Loblaw reported lower than expected earnings and weak sales growth.

Metro expects investment in its Ontario stores will improve same-store sales, but it would not provide any targets or timetable.

Capital spending, which will slow to about C$200 million this year, will return to traditional levels around C$300 million next year, Metro said.

($1=$1.05 Canadian)

Reporting by Susan Taylor and Jennifer Kwan; editing by Rob Wilson

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