Mr. Eric La Fleche reports

METRO REPORTS 2024 SECOND QUARTER RESULTS

Metro Inc. has released its results for the second quarter of fiscal 2024, ended March 16, 2024.

Two thousand twenty-four second quarter highlights:

• Sales of $4,655.5-million, up 2.2 per cent;
• Food same-store sales up 0.2 per cent, and up 2.7 per cent when adjusting for the Christmas week shift;
• Pharmacy same-store sales up 5.9 per cent;
• Net earnings of $187.1-million, down 14.5 per cent, and adjusted net earnings of $206.4-million, down 8.4 per cent;
• Fully diluted net earnings per share of 83 cents, down 10.8 per cent, and adjusted fully diluted net earnings per share of 91 cents, down 5.2 per cent;
• Ramp up of new automated Terrebonne distribution centre on schedule.

President's message

"We are pleased with our sales performance in the second quarter, on top of a strong quarter last year and with inflation continuing to decline. Our results met our expectations as we completed the bulk of the transition to our new automated fresh and frozen facility in Terrebonne. Going forward, our teams are focused on ramping up productivity and we are now gearing up for the launch of the final phase of our Toronto automated fresh facility this summer. Finally, we are announcing today the launch of our MOI rewards program in our Ontario food stores later this year, which will provide even more savings to our customers. We are confident that our sustained investments in our supply chain, our retail networks and our digital capabilities will continue to create long-term value for our shareholders," declared Eric La Fleche, president and chief executive officer.

Operating results

Sales

Sales in the second quarter of fiscal 2024 ended on March 16, 2024, were $4,655.5-million, up 2.2 per cent versus the second quarter of the prior year, which ended on March 11, 2023, driven by higher sales in the company's retail network. Metro's food basket inflation was about 3 per cent, down from 4 per cent in the previous quarter.

Food same-store sales were up 0.2 per cent in the second quarter of fiscal 2024 (5.8 per cent in the second quarter of 2023), and up 2.7 per cent when adjusting for the Christmas shift. Pharmacy same-store sales were up 5.9 per cent (7.3 per cent in the second quarter of 2023), with a 6-per-cent increase in prescription drugs and a 5.8-per-cent increase in front-store sales, driven by a strong cough and cold season, and effective merchandising strategies.

Sales in the first 24 weeks of fiscal 2024 totalled $9,629.7-million, up 4.4 per cent compared with $9,225.4-million for the corresponding period of 2023.

Operating income before depreciation and amortization, and impairments of assets

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

Operating income before depreciation and amortization, and impairments of assets, for the second quarter of fiscal 2024 totalled $439.1-million, or 9.4 per cent of sales, a decrease of 1.8 per cent versus the corresponding quarter of fiscal 2023. This year, operating income before depreciation and amortization, and impairments of assets, included a gain on disposal of assets of $7.2-million versus a loss of $300,000 last year. Operating income before depreciation and amortization, and impairments of assets, for the first 24 weeks of fiscal 2024 totalled $907.2-million, or 9.4 per cent of sales, down 0.2 per cent versus the corresponding period of 2023.

Gross margin for the second quarter and the first 24 weeks of fiscal 2024 were 19.9 per cent and 19.7 per cent, respectively, versus 20.1 per cent and 19.8 per cent for the corresponding periods of 2023, reflecting a lower food margin.

Operating expenses as a percentage of sales for the second quarter of fiscal 2024 were 10.7 per cent versus 10.3 per cent in the corresponding quarter of 2023. The increase in operating expenses is mainly due to the commissioning of Metro's new automated distribution centre for fresh and frozen products in Terrebonne. For the first 24 weeks of fiscal 2024, operating expenses as a percentage of sales were 10.4 per cent versus 10 per cent for the corresponding period of 2023.

Depreciation and amortization

Total depreciation and amortization expense for the second quarter of fiscal 2024 was $129.5-million versus $120.6-million for the corresponding quarter of 2023. The increase in depreciation and amortization expense is mainly due to the commissioning of the company's new automated distribution centre for fresh and frozen products in Terrebonne. For the first 24 weeks of fiscal 2024, total depreciation and amortization expense was $260.6-million versus $240.7-million for the corresponding period of 2023.

Impairments of assets

During the second quarter of fiscal 2024, the corporation recorded $20.8-million of impairments of assets resulting from the decision to have Metro stores in Ontario withdraw from the Air Miles loyalty program in the fall of 2024. This impairment represents the entire carrying value of the loyalty program asset.

Net financial costs

Net financial costs for the second quarter of fiscal 2024 were $34.1-million compared with $28.3-million for the corresponding quarter of 2023. The increase is mainly due to an increase in debt and lower capitalized interest related to Metro's distribution centre automation projects. For the first 24 weeks of fiscal 2024, net financial costs were $66.5-million compared with $55.4-million for the corresponding period of 2023.

Income taxes

The income tax expense of $67.6-million for the second quarter of fiscal 2024 represented an effective tax rate of 26.5 per cent, compared with an income tax expense of $79.6-million and an effective tax rate of 26.7 per cent for the second quarter of fiscal 2023. The 24-week period income tax expense of $143.7-million for fiscal 2024 and $163.3-million for fiscal 2023 represented effective tax rates of 25.7 per cent and 26.6 per cent, respectively.

Net earnings and adjusted net earnings

Net earnings for the second quarter of fiscal 2024 were $187.1-million compared with $218.8-million for the corresponding quarter of 2023, while fully diluted net earnings per share were 83 cents compared with 93 cents in 2023, down 14.5 per cent and 10.8 per cent, respectively. Excluding the specific items shown in the associated table, adjusted net earnings for the second quarter of fiscal 2024 totalled $206.4-million compared with $225.4-million for the corresponding quarter of 2023, and adjusted fully diluted net earnings per share were 91 cents versus 96 cents, down 8.4 per cent and 5.2 per cent, respectively.

Net earnings for the first 24 weeks of fiscal 2024 were $415.6-million compared with $449.9-million for the corresponding period of 2023, while fully diluted net earnings per share were $1.82 compared with $1.90 in 2023, down 7.6 per cent and 4.2 per cent, respectively. Excluding the specific items shown in the associated table, adjusted net earnings for the first 24 weeks of fiscal 2024 totalled $441.4-million compared with $463-million for the corresponding period of 2023, and adjusted fully diluted net earnings per share amounted to $1.93 versus $1.96, down 4.7 per cent and 1.5 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, 2023, and Nov. 24, 2024. Between Nov. 25, 2023, and April 5, 2024, the corporation has repurchased 3,945,000 common shares at an average price of $70.18, for a total consideration of $276.9-million.

Dividends

On April 23, 2024, the board of directors declared a quarterly dividend of 33.50 cents per share, the same amount declared last quarter.

Outlook

With the continuing transition to Metro's new state-of-the-art automated distribution centre in Terrebonne, and the launch of the final phase of the company's automated fresh distribution centre in Toronto this summer, 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. While these investments position the company well for continued long-term profitable growth, Metro will not fully absorb these additional expenses in the current fiscal year, and is forecasting operating income before depreciation and amortization, and impairments of assets, to grow by less than 2 per cent, 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 2024 second quarter results at 9 a.m. (Eastern Time) today, April 24, 2024. 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-only mode.

Notice to readers: Metro's second quarter of 2024 interim condensed consolidated financial statements, and management's discussion and analysis, are available on the Internet at the company's website.

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