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Metro Inc. is still exploring the possibility of expanding its pharmacy network even though it expects to face two years of sales pressure from lower generic drug prices being imposed by the governments of Quebec and Ontario.

The Montreal-based supermarket and pharmacy chain's first-quarter sales were down from last year due to intense competition and lower food prices in the grocery sector and the impact of the new drug legislation.

"There's two years of built-in deflation in the drug business because of this generic law," chief executive officer Eric La Flèche told reporters Tuesday following Metro's annual shareholders meeting.

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"We have to lower the cost structure because the model is changing."

That means reducing the assortment of drugs that are available, cutting expenses and becoming more efficient with warehousing.

Metro said its first-quarter profit decreased 6.2 per cent to $92-million, or 88 cents per share. That compared to $98.1-million, or 91 cents a share in the same period last year.

Excluding one-time items that boosted last year's first quarter profit, Metro's adjusted profit grew 3.7 per cent from $88.7-million, or 82 cents per share.

The adjusted EPS was in line with analyst expectations, but revenues were a little lower than forecast by analysts polled by Thomson Reuters.

Sales at Metro's grocery stores fell by half a per cent to $2.63-billion from $2.65-billion.

Revenue was forecast to increase slightly to $2.67-billion.

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The company said same-store sales - from locations open at least a year - were steady. But overall prices for food and drugs dipped about 1 per cent.

Meanwhile, Mr. La Flèche said Metro is in good position to face the impending decision by Wal-Mart Stores Inc. to begin selling a full range of food at Quebec Super centres - as the U.S. retail giant does in other markets including Ontario.

"We don't think that the arrival of the Super centres will drastically change the Quebec market because they are already an important player in terms of food," Mr. La Flèche said.

The current stores sell a wide assortment of dry goods and some refrigerated products.

As Quebec's leading grocery chain with nearly 34 per cent market share, Metro said it has a broad offering that includes 74 discount Super C stores and regular Metro stores that are in good shape and operate in convenient locations.

Metro increased its quarterly dividend 13 per cent to 19.25 cents per share payable March 8.

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Shareholders elected former Ontario Conservative leader John Tory as a director, replacing Bernard Roy, who reached the mandatory retirement age of 70..

Metro has more than 65,000 employees in Quebec and Ontario.

It operates a network of close to 600 food stores under several banners including Metro, Metro Plus, GP, Super C and Food Basics, as well as over 250 drugstores under the Brunet, Brunet Plus, Clini Plus, The Pharmacy and Drug Basics banners.

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