MONTREAL – Slumping oil prices may be hurting the overall economy, but they are boosting Central Canada’s grocery sector, supermarket chain Metro said Tuesday after posting earnings that beat expectations.
“We can see increases in traffic in our stores and a higher spend for us in our industry has been a positive,” CEO Eric La Fleche told reporters following the company’s annual meeting.
Crude prices have been more than halved since last June, sending prices at the pump lower and leaving consumers with more money in their pockets.
Besides beating earnings expectations, Metro also boosted its quarterly dividend 16 per cent and its shares soared on the Toronto Stock Exchange, peaking at $104.03 before settling back with a gain of $3.67 or 3.77 per cent at $100.93 at midafternoon.
First-quarter profits increased 13.4 per cent to $112.5 million or $1.30 per diluted share, up from $99.2 million or $1.96 per share a year earlier.
Adjusted earnings for the period ended Dec. 20 were up 21.6 per cent to $1.35 per share, four cents above analyst estimates as compiled by Thomson Reuters.
Sales totalled $2.84 billion, up 5.2 per cent from $2.7 billion a year earlier, driven by its best same-store sales performance in about five years and the acquisition of the Premiere Moisson bakery chain.
Sales for existing stores — a key retail measure — increased 3.8 per cent, up from 3.1 per cent in the prior quarter on a three per cent increase in overall pricing and Metro’s efforts to improve its fresh food offering and discount Food Basics banner.
The falling Canadian dollar is increasing prices for imported meat and produce. La Fleche expects prices will increase two to three per cent in the coming quarters.
Metro also announced a three-for-one stock split, which will result in shareholders of record getting two additional shares for each share they own as of Feb. 6.
Metro said it will increase its dividend in March, paying out 25 per cent of its 2014 adjusted profits. Prior to the split, the quarterly dividend will rise by five cents to 35 cents per share. On a split-adjusted basis, the dividend will go to 11.7 cents per share after Feb. 18.
The first-quarter results included $17.9 million from its stake in convenience store operator Alimentation Couche-Tard (TSX:ATD.B), up from $13.1 million in the first quarter of 2014.
Metro said the costs incurred from next week’s closure of 14 Brunet pharmacies in Quebec Target stores won’t be significant for the company.
La Fleche called the Target affiliation a failure and a disappointing experience. While Metro could tell from weak consumer traffic that things weren’t going well for the U.S. retailer, the decision to close its 133 Canadian stores came quicker than it thought.
He said Metro will consider bidding for some sites but said the impact on the company will depend on whether Walmart, Loblaw (TSX:L) or some other retailer occupies the locations.
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