November 19, 2008 / 1:08 PM / in 9 years

UPDATE 2- Metro Inc's profit jumps, sales edge up

* EPS C$0.64 vs C$0.49

* Sales rise 1.8 percent to C$2.48 billion

* Sees 2009 capex at C$300 million

* Shares off 0.2 percent at C$32.94 (Adds company, analyst comments)

TORONTO, Nov 19 (Reuters) - Metro Inc MRUa.TO reported a sharply higher quarterly profit on Wednesday, despite flat sales, as the overhaul of its computer system and rebranding moves in the big Ontario market began to pay off.

Canada’s third-largest food retailer moved to consolidate its five Ontario food banners under the main Metro name to try to boost efficiency and spark growth.

Metro started the rebranding work in September to renovate stores, offer a wider and improved range of food products, and launch a new marketing campaign.

To date the company has converted some 42 stores to the Metro banner and said it expects to have 60 of the stores, including The Barn and Dominion brands, completed in time for the Christmas holiday rush.

The company said it would spend about C$300 million ($242 million) in capital expenditures in 2009 as it continues the upgrades and opens a dozen new stores. It sees a total net square footage increase of about 1.5 percent next year.

But Metro expects competition to remain strong for the rest of the year and into 2009 as it faces a slowing economy and pressures from its major rivals, who have slashed their prices to attract customers.

“The marketplace remained competitive in the fourth quarter and the pricing environment was stable. This environment continues to prevail into the first quarter of 2009,” Chief Executive Eric La Fleche said on a conference call with analysts.

Canadian grocery chains such as Loblaw Cos (L.TO) and Metro have been forced to cut prices on key staples as they look to fend off stiff price competition from U.S.-based retail giant Wal-Mart Stores (WMT.N).

Loblaw, the country’s top grocer, has been hit hard as Wal-Mart expands food sales in Canada.

In August, Wal-Mart cut prices on food staples such as milk and bread in Ontario, Canada’s most populous province, in a bid to attract customers who have been hit hard by the economic slowdown. Metro, along with the others, quickly followed suit.

La Fleche said it would continue to be aggressive when matching prices.

“We are and we will remain price competitive. We have our strategies to compete and I think we can work around that environment as we do in any competitive environment,” he said.

So far, Metro has not shown signs of weakness during the downturn, said one analyst whose company policy requires employees to remain anonymous when commenting to the media.

“So far I don’t see any economic impact on their business, other than a greater trend to more private labels, but that would be expected and a net positive on the bottom line,” the analyst said.

Metro shares were down 0.2 percent at C$32.94 on the Toronto Stock Exchange, considerably less than the 0.9 percent decline for the overall consumer staples index in which it is the second-biggest component.

EARNINGS GROW

The company said on Wednesday it earned C$72.3 million ($58.6 million), or 64 Canadian cents a share in its fourth quarter, up 25.5 percent from C$57.6 million, or 49 Canadian cents a share in the same period last year.

The 2007 results included costs related to its A&P Canada acquisition. Without the costs, the 2007 results were C$66.8 million, or 57 Canadian cents a share.

Revenue for the quarter was C$2.48 billion, up 1.8 percent from C$2.43 billion for the same time last year. Same-store sales rose 1.5 percent.

Analysts had expected earnings of 61 Canadian cents a share, on average, and revenue of C$2.50 billion according to Reuters Estimates. ($1=$1.24 Canadian) (Reporting by Scott Anderson)

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