January 25, 2011 / 5:03 PM / 7 years ago

UPDATE 3-Grocer Metro posts lower profit, revenue misses

* Q1 EPS C$0.88 meets estimates

* Revenue misses expectations

* Raises quarterly dividend

* Shares closed 0.5 percent in Toronto (Adds comments from conference call; updates shares)

TORONTO, Jan 25 (Reuters) - Metro Inc MRUa.TO, Canada’s No. 3 grocer, on Tuesday posted a lower quarterly profit and revenue that fell short of analysts’ targets as holiday-season competition pulled down food prices.

Shares of the retailer slipped after it reported no growth in gross profit margins and little change in sales at stores open for at least a year. Legislation to lower drug prices in Ontario also held back the results.

“I would describe the competitive environment in the first quarter as more intense than last year,” Chief Executive Officer Eric La Fleche said. “This environment has continued into the second quarter.”

Net income for the fiscal first quarter ended Dec. 18 fell to C$92 million ($92 million), or 88 Canadian cents a share, from C$98.1 million, or 91 Canadian cents, in the year-before quarter.

On an adjusted basis, earnings rose 7 percent to 88 Canadian cents a share, matching the average estimate of analysts, according to Thomson Reuters I/B/E/S.

Revenue fell 0.5 percent to C$2.63 billion, slightly less than expected.

INTENSE COMPETITION

Grocers generally benefit from rising food prices, passing on higher costs for commodities such as wheat, rice and fresh produce to consumers. But a drop in food prices, also known as food deflation, can lead to competitive price-cutting and tighter profit margins.

Fierce competition, especially in Ontario, is hurting the bottom line for many retailers as they vie for consumers who are still cost-conscious.

Metro competes with Loblaw Cos L.TO and Empire Co Ltd (EMPa.TO), as well as Walmart Canada, a unit of Wal-Mart Stores Inc (WMT.N). It operates about 600 food stores and more than 250 drugstores in the provinces of Ontario and Quebec.

Competition is expected to heat up in Quebec, where Metro is bracing for the opening of Walmart supercenters.

The company expects the first supercenters in the province to open this year, said La Fleche.

Apart from its namesake stores, Metro operates stores under banners such as GP, Super C, Food Basics, Brunet and Drug Basics.

Shares of the company closed down 0.5 percent at C$43.62 on the Toronto Stock Exchange.

The company raised its quarterly dividend by 13 percent.

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