2023-11-16 02:56:29
The short-term cost impact of Metro’s “major” investments in three distribution centers took investors by surprise. The Montreal company expects a significant slowdown in its growth next year.
Metro management is not in the habit of making forecasts, but it made an exception for fiscal year 2024 “for the sake of transparency.” It warns its shareholders that the costs linked to its investments will eat into its profitability.
The owner of the Metro, Jean Coutu and Super C brands forecasts that its operating profit will increase “by less than 2%” during the financial year which ends at the end of September 2024. The company maintains its objective to increase its earnings per share by between 8% and 10% in the long term.
“It’s a big year of transition,” commented President and CEO Eric La Flèche during a conference call on Wednesday to discuss quarterly results. We are hopeful that things will go well. We learned a lot in Toronto [d’un précédent investissement]. »
During the next fiscal year, Metro will commission its new automated distribution center in Terrebonne, expand its fruit and vegetable center in Montreal and launch the final phase of its automated fresh produce center in Toronto next spring .
This transition period will lead to a logistical waltz which will require temporary duplication within the company’s distribution activities, explains Mr. La Flèche. “We have started operations in Terrebonne, but we have not yet stopped operations in the old distribution centers. [La transition] will be done over several months. »
“We started with frozen foods,” he describes. Things are going well. We will make the fish later. Afterwards, we will take a break for the holidays. At the beginning of the year, we will go with fresh products. »
The extent of the weight of investments on profitability is a surprise for investors, notes Desjardins Capital Markets analyst Chris Li. “Although we believe that investors anticipated a certain cost, it is higher than expected. anticipated. Analyst consensus forecasts earnings per share growth of 6%. »
Mr. La Flèche denies taking investors by surprise. “I am not responsible for analyst forecasts. We have been transparent. These investments are known. We’ve been talking regarding it since 2017 or 2018.”
RBC Capital Markets analyst Irene Nattel is not concerned regarding this drop in profitability in the short term. “Investors will obviously be disappointed with the fiscal 2024 guidance, but Metro has a good track record of execution and predictability of its results. We believe investors will look beyond 2024 and focus on resuming growth in 2025.”
In addition to the investments, Mr. La Flèche mentioned that he anticipated that the sale of over-the-counter medications in his pharmacies [Jean Coutu et Brunet] should be lower than last year, a period marked by the end of the relaxation of health measures and a season of greater spread for COVID-19, influenza and respiratory syncytial virus (RSV).
Moderation of inflation
On the subject of inflation, the company saw a moderation in food inflation last summer, but the increase remains much higher than before the pandemic.
Food inflation thus reached 5.5% at Metro during the three-month period ending September 30 compared to 8% three months earlier. The Montreal company emphasizes that this threshold is lower than the national average.
In Canada, food inflation followed a comparable trajectory, going from 8.3% in June to 5.9% in September, according to Statistics Canada data.
Metro’s results cover a period before the Trudeau government was convened, which asked grocers to find ways to lower their prices, while the threat of a special tax was raised.
“We always receive requests for price increases from major suppliers,” says Mr. La Flèche. Our team will negotiate as much as possible. We believe that inflation will moderate in the future. »
The executive says he has not seen any notable changes in consumer behavior. These always favor discount brands (Super C) as well as private brands, he notes.
Results below expectations
Metro revealed, on Wednesday, financial results lower than analysts’ expectations for the fourth quarter ended September 30, despite an increase in its comparable sales of 6.8% in grocery and 5.5% in pharmacies.
The company posted net income of $222.2 million, up 31.7%. Last year, Metro’s profit was reduced due to a charge linked to the abandonment of the Air Miles program by Jean Coutu. Without this charge, profit would have increased by 4.3%. Adjusted diluted earnings per share reached 99 cents.
The labor dispute at 27 Toronto-area stores reduced the company’s fourth-quarter net profit by regarding $27 million.
Revenues, for their part, increased by 14.4% to $5.07 billion. The company points out that the 2023 financial year had one more week, or 53 weeks. Without this additional week in the fourth quarter, revenues would have increased by 5.4%.
Before the results were released, analysts expected earnings per share of $1.07 and revenue of $5.09 billion, according to financial data firm Refinitiv.
Metro shares lost $4.24, or 5.61%, to $71.73 on the Toronto Stock Exchange late in the morning.
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