On the money: Fresh, loyalty help Metro manage trading conditions
Metro said the environment remains highly promotional
Canadian retailer Metro Inc has said its fresh food and customer loyalty schemes are helping it trade in a "highly competitive" sector.
The CEO of Metro, which this morning (24 April) booked an increase in first-half earnings, pointed to the highly promotional environment in Canada and suggested it was likely to be a fixture for 2013.
"Consumers remain very value conscious and shop around that's for sure. It's a highly promotional environment, it peaked around Christmas and it is still very high," Eric La Flèche told analysts. "The promotional activity is pretty intensive. New stores opened and people try to protect their share as much as they can and that puts pressure on the promotional activity."
Nonetheless, the CEO struck an upbeat note. "We're managing pretty well and our margin results reflect that. The environment remains promotional but our fresh initiatives we have in place, the loyalty work we have in place, a few more store openings and conversions will help us generate some progress."
Also speaking on the retailer's earnings call today, CFO François Thibault told analysts Metro's debt to capital ratio now stands at 19% in the first quarter, down from 28% at end of fiscal 2012.
As a result, he suggested the retail group was open, well-positioned and on the look out for acquisition opportunities in 2013.
In the second quarter, Metro sold nearly half of its investment in Alimentation Couche-Tard to three financial institutions for C$479m and a net gain of C$266.4m after taxes. In the first quarter it also discontinued its foodservice operation and disposed of the Distagro division.
"Proceeds from the sale were used primarily on our revolving credit facility while we evaluate our opportunities for growth, productivity and potential acquisitions," Thibault said. "In due course and depending on these opportunities, we would definitely consider returning cash to our shareholders."
BC Capital Markets analyst Irene Nattel pointed to Metro's debt to capital ratio and its balance sheet and asked how long it might be before the firm looks to "redeploy the proceeds".
La Flèche told analysts: "There is no rush. We have the cash. We want to look at all the opportunities. We're getting growth, productivity improvements, we're looking at several initiatives, with acquisitions there is nothing imminent but we want to make sure we evaluate all those possibilities really well before making final decisions. We are very mindful of our shareholders, we are very shareholder focused and we will do the right thing in due course."
Flèche added that he did not think, however, the M&A environment had "heated up" this year.
"We are well-positioned and remain on the lookout [for M&A] but things have not heated up so there is nothing imminent."
The retailer this morning reported earnings of C$488.2m (US$476m) compared to a net profit of C$199.8m last year. Sales in the 24-week period reached C$5.22bn, 1% up on the prior year, but same-store sales remained flat.
"We're flat on a same store basis but the basket is up a bit and traffic down a bit," said Flèche. "A lot of things can explain that, competitive activity is one, and there were a few days this year when it was pretty bad weather. In the third quarter there was a shift in the Easter day, it was early this year, it was cold and snowy ... Hopefully we'll be catching up on that."
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