Price increases coming to Metro stores next week, CEO says

Rosa Saba, The Canadian Press

Published Tuesday, January 30, 2024 2:46 pm EST

Last updated Tuesday, January 30, 2024 4:40 pm EST

MONTREAL — Higher prices will start arriving at Metro Inc. grocery stores as soon as next week, after an industry-wide blackout period over supplier price increases ends, the CEO Eric La Fleche.

“We are negotiating as best we can and delaying as much as we can some of the increases requested by our suppliers,” La Fleche said in a virtual news conference.

“Unfortunately, some prices will start to rise.”

La Fleche said one product Metro shoppers will pay more for is orange juice, due to problems with orange crops.

“That’s going to be substantial,” he said. “Clearly we are going to sell a lot less orange juice.”

However, La Fleche offered some hope for future stability, saying the number of requests for price increases from suppliers has dropped substantially from the highs of last year and the year before.

“So it’s good news,” he said. “And the size of claims is returning to more normal levels.”

The comments came as the grocery and pharmacy retailer reported a first-quarter profit of $228.5 million, with sales up 6.5 percent.

Metro said its profit rose to 99 cents per diluted share for the quarter ended Dec. 23, compared with a profit of $231.1 million or 97 cents per diluted share a year earlier, when the company had more shares in circulation.

Sales totaled $4.97 billion, up from $4.67 billion in the year-ago quarter, which ended December 17, 2022.

Same-store food sales rose 6.1 percent, helped in part by the timing of the quarter’s end relative to Christmas. Adjusting for the Christmas week shift, Metro said same-store food sales rose 3.4 percent. Same-store sales of pharmaceuticals rose 3.9 percent.

La Fleche said Metro’s discount store banners continued to drive growth, while the company’s private brands are reaching record levels of penetration.

The company has opened nine new discount stores in Quebec and Ontario in the past 15 months and is scheduled to open another four this fiscal year, it told analysts on the call Tuesday afternoon.

Grocery inflation in Canada has been moderating under the weight of interest rate increases, but is still elevated at 4.7 per cent in December.

Metro’s internal measure of inflation in its stores was below last quarter, at four percent, La Fleche said, and below the previous quarter.

Metro is not the only grocer facing requests for price increases from its suppliers. Loblaw and Empire have said that some of the largest suppliers come to them with unjustifiable price increases.

Some of the demands Metro is receiving are “too high and difficult to justify,” La Fleche said, causing tension in the negotiations. The grocer has not reached a point where he stops selling these products, he added, but sometimes he makes other adjustments, such as reducing the amount he sells of a certain product.

Grocers have been under political pressure to stabilize food prices, with Industry Minister François-Philippe Champagne asking executives in the fall to create plans or face the consequences.

This week, Champagne said in a letter to the competition commissioner that large supermarkets have not been sufficiently transparent about the causes of food inflation, “and, for the most part, have not provided regular updates on initiatives aimed at stabilize food prices. prices in the country.”

He suggested following up on the Competition Bureau’s study of the Canadian grocery sector last year, now that the bureau has new powers to obtain more information from companies.

La Fleche said Metro “fully and transparently collaborated” with the Competition Office for its study. She also noted that the grocer appeared three times before the House of Commons committee studying food prices to answer questions from MPs.

In its outlook, Metro went on to say it expected significant headwinds in 2024 with the launch of its automated distribution center in Terrebonne, Que., and the launch of the final phase of its automated produce plant in Toronto next spring.

It says it expects some temporary cost duplication and inefficiencies in the learning curve, as well as higher depreciation and lower capitalized interest.

The company maintained its guidance that operating income before depreciation and amortization will grow less than two percent and adjusted net earnings per share will remain flat to a decline of 10 cents in its 2024 financial year compared to 2023.

“We expect to return to historic earnings growth after fiscal 2024,” La Fleche said at the company’s Annual General Meeting on the same day.

On an adjusted basis, Metro says it earned $1.02 per diluted share, down from an adjusted profit of $1 per share a year earlier.

Metro said Tuesday it will pay a quarterly dividend of 33.5 cents per share, up from 30.25 cents per share.

Metro shares closed down 1.56 per cent at $70.10 on the Toronto Stock Exchange.

– With files from Nojoud Al Mallees in Toronto

This report by The Canadian Press was first published Jan. 30, 2024.

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