Mr. Eric La Fleche reports

METRO REPORTS 2023 FOURTH QUARTER RESULTS

Metro Inc. has released its results for the fourth quarter of fiscal 2023 ended Sept. 30, 2023.

Fourth quarter 2023 highlights:

• 13-week quarter versus 12 weeks in 2022;
• Sales of $5,071.7-million, up 14.4 per cent;
• Food same-store sales up 6.8 per cent;
• Pharmacy same-store sales up 5.5 per cent;
• Net earnings of $222.2-million, up 31.7 per cent, and adjusted net earnings of $228.8-million, up 4.3 per cent;
• Fully diluted net earnings per share of 96 cents, up 37.1 per cent, and adjusted fully diluted net earnings per share of 99 cents, up 7.6 per cent;
• Negative impact of about 12 cents per share due to a labour conflict at 27 Metro stores in the Greater Toronto Area.

Two thousand twenty-three fiscal highlights:

• 53-week fiscal year versus 52 weeks in 2022;
• Sales of $20,724.6-million, up 9.7 per cent;
• Net earnings of $1,018.8-million, up 19.9 per cent, and adjusted net earnings of $1,006.6-million, up 9.2 per cent;
• Fully diluted net earnings per share of $4.35, up 23.9 per cent, and adjusted fully diluted net earnings per share of $4.30, up 12.6 per cent.

President's message

"We are pleased with our fourth quarter results, which were achieved in a challenging operating environment that included a five-week strike at 27 Metro stores in Ontario. For the first time in our history, sales for the year exceeded $20-billion and net earnings reached $1-billion. Our sales momentum remains strong, driven by our discount banners and pharmacy. Food inflation declined steadily during the quarter and our teams continue to deliver the best value possible to our customers every day. We reached a key milestone in our supply chain modernization program with the start up of our new state-of-the-art automated distribution centre for fresh and frozen products north of Montreal. This facility will improve service to our stores and fuel our long-term growth," declared Eric La Fleche, president and chief executive officer.

Operating results

Sales

Sales in the fourth quarter of fiscal 2023 remained strong, reaching $5,071.7-million, up 14.4 per cent versus the fourth quarter of the prior year. Excluding the 13th week in 2023, fourth quarter sales were up 5.4 per cent. Food same-store sales were up 6.8 per cent (8 per cent in the fourth quarter of 2022), driven mostly by the company's discount banners. On-line food sales were up 116 per cent versus last year (33 per cent in the fourth quarter of 2022), mostly driven by higher partnership sales. Metro's food basket inflation was about 5.5 per cent, lower than reported CPI (consumer price index), and down from 8 per cent in the third quarter. Pharmacy same-store sales were up 5.5 per cent (7.4 per cent in the fourth quarter of 2022), with a 6.7-per-cent increase in prescription drugs and a 3.1-per-cent increase in front-store sales, with increases across most categories except over-the-counter products as Metro cycled very high sales last year due to a strong cough and cold season.

Sales for fiscal 2023 totalled $20,724.6-million, up 9.7 per cent, compared with $18,888.9-million for fiscal 2022. Excluding the 53rd week in 2023, sales were up 7.6 per cent.

Operating income before depreciation and amortization, and impairments of assets, net of reversals

This earnings measurement excludes financial costs, taxes, depreciation and amortization, and impairments of assets, net of reversals.

Operating income before depreciation and amortization, and impairments of assets, net of reversals, for the fourth quarter of fiscal 2023 totalled $448-million, or 8.8 per cent of sales, an increase of 1.5 per cent versus the corresponding quarter of fiscal 2022. The fourth quarter of 2023 was unfavourably impacted by $36.7-million of estimated lost profits and direct costs from a labour conflict at 27 Metro stores in the Greater Toronto Area. For fiscal 2023 operating income before depreciation and amortization, and impairments of assets, net of reversals, totalled $1,969.6-million, or 9.5 per cent of sales, up 6.8 per cent versus the corresponding period of 2022.

Gross profit for the fourth quarter of 2023 was unfavourably impacted by $36.3-million of estimated lost profits and direct costs related to a labour conflict at 27 Metro stores in the Greater Toronto Area. Gross margin for the fourth quarter and fiscal 2023 were 19.5 per cent and 19.7 per cent, respectively, versus 20.4 per cent and 20 per cent for the corresponding periods of 2022, reflecting the impact of lost sales related to the strike and a decline in Metro's food margin, partly offset by an increase in the company's pharma division.

Operating expenses as a percentage of sales for the fourth quarter and fiscal 2023 were 10.7 per cent and 10.2 per cent versus 10.7 per cent and 10.4 per cent in the corresponding periods of 2022. The net impact of a labour conflict at 27 Metro stores in the Greater Toronto Area on operating expenses in the fourth quarter of 2023 was an increase of $400,000. If not for lost sales due to the strike, operating expenses as a percentage of sales would have been lower than last year.

Depreciation and amortization

Total depreciation and amortization expense for the fourth quarter and fiscal 2023 was $125-million and $525.2-million versus $119.8-million and $503.3-million for the corresponding periods of 2022.

Impairments of assets, net of reversals

There were no impairments of assets, net of reversals, in fiscal 2023. During the fourth quarter of fiscal 2022, the corporation recorded $70.1-million of impairments of assets, net of reversals, including $60-million, resulting from the company's decision to have Jean Coutu withdraw from the Air Miles loyalty program in the spring of 2023. This impairment represents the entire carrying value of the Jean Coutu loyalty program asset. Impairment losses were also recorded on store assets, mainly right-of-use assets, whose recoverable amounts were lower than their carrying amounts. Impairment reversals were recognized during the fourth quarter of 2022 for other sites, following changes in the estimates used to determine the recoverable amount.

Net financial costs

Net financial costs for the fourth quarter of fiscal 2023 were $30.1-million compared with $25.3-million for the corresponding quarter of 2022. The increase is mostly due to higher debt, partly mitigated by higher capitalized interests on Metro's distribution centre automation projects. For fiscal 2023, net financial costs were $122.6-million compared with $117.6-million for fiscal 2022.

Income taxes

The income tax expense of $70.7-million for the fourth quarter of fiscal 2023 represented an effective tax rate of 24.1 per cent compared with an income tax expense of $57.5-million and an effective tax rate of 25.4 per cent in the fourth quarter of fiscal 2022. The income tax expense of $303-million for fiscal 2023 and $304.1-million for fiscal 2022 represented an effective tax rate of 22.9 per cent and of 26.4 per cent, respectively. The decrease in the effective tax rate in 2023 is mainly attributable to the recording of tax assets of $40.7-million in the third quarter of fiscal 2023, for capital losses previously refused by the Canada Revenue Agency.

Net earnings and adjusted net earnings

Net earnings for the fourth quarter of fiscal 2023 were $222.2-million compared with $168.7-million for the corresponding quarter of 2022, while fully diluted net earnings per share were 96 cents compared with 70 cents in 2022, up 31.7 per cent and 37.1 per cent, respectively. Excluding specific items, adjusted net earnings for the fourth quarter of fiscal 2023 totalled $228.8-million compared with $219.4-million for the corresponding quarter of 2022, and adjusted fully diluted net earnings per share were 99 cents versus 92 cents, up 4.3 per cent and 7.6 per cent, respectively. The labour conflict at 27 Metro stores in the Greater Toronto Area had an unfavourable impact of approximately $27-million after-tax, or 12 cents per share. The 13th week had a favourable impact of $27-million net of tax, or 12 cents per share.

Net earnings for fiscal 2023 were $1,018.8-million compared with $849.5-million for fiscal 2022, while fully diluted net earnings per share were $4.35 compared with $3.51 in 2022, up 19.9 per cent and 23.9 per cent, respectively. Excluding specific items, adjusted net earnings for fiscal 2023 totalled $1,006.6-million compared with $922.1-million for fiscal 2022, and adjusted fully diluted net earnings per share amounted to $4.30 versus $3.82, up 9.2 per cent and 12.6 per cent, respectively.

Normal course issuer bid program

Under the current normal course issuer bid program, the corporation may repurchase up to seven million of its common shares between Nov. 25, 2022, and Nov. 24, 2023. Between Nov. 25, 2022, and Nov. 7, 2023, the corporation has repurchased 6,719,700 common shares at an average price of $72.09, for a total consideration of $484.4-million. The corporation intends to renew its normal course issuer bid program as an additional option for using excess funds.

Dividends

On Oct. 6, 2023, the board of directors declared a quarterly dividend of 30.25 cents per share, the same amount declared last quarter.

Outlook

As Metro begins its new fiscal year, the company is ramping up its new state-of-the-art, automated distribution centre north of Montreal and the expansion of its Montreal produce facility, as planned. Metro is also preparing for the launch of the final phase of its automated fresh facility in Toronto next spring. While these investments position the company well for continued long-term profitable growth, Metro is facing significant headwinds in fiscal 2024 as it incurs some temporary duplication of costs and learning curve inefficiencies, as well as higher depreciation and lower capitalized interest. Metro will not fully absorb these additional expenses and it is currently forecasting operating income before depreciation and amortization, and impairments of assets, net of reversals, to grow by less than 2 per cent in fiscal 2024 versus the level reported in fiscal 2023, and adjusted net earnings per share to be flat to down 10 cents in fiscal 2024 versus the level reported in fiscal 2023. Metro expects to resume its profit growth postfiscal 2024 and is maintaining its publicly disclosed annual growth target of between 8 per cent and 10 per cent for net earnings per share over the medium and long term.

Conference call

Financial analysts and institutional investors are invited to participate in a conference call for the 2023 fourth quarter results at 9 a.m. (ET) today, Nov. 15, 2023. To access the conference call, please dial 416-764-8651 or 1-888-390-0620. The media and investing public may access this conference via a listen mode only.

Notice to readers: Metro's fourth quarter of 2023 interim condensed consolidated financial statements, and management's discussion and analysis, are available on the company's website.

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