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Metro's second-quarter results hit by operational expenses

Montreal-based grocery company continues to grapple with increases in labour and transportation costs

Though it attempted to keep a tighter rein on its operating expenses, Metro's second quarter results were hit by Ontario's minimum wage increase and a hike in transportation costs, among other things, according to its CEO Eric La Flèche.

The Montreal-based grocery company earned $106 million in its latest quarter, down 19.3% from $132.4 million a year ago. On Jan .1, Ontario boosted hourly minimum wage by 20% — from an $11.60 to $14. The rate will rise to $15 an hour in 2019. "Minimum wage impacted our results as expected and we continue to control expenses to mitigate this impact," said La Flèche during a conference call with analysts Tuesday morning.

The Pay Equity Act — new legislation in Ontario that requires employers to pay the same wage to part-time employees who do the same job as full-time employees — will put additional stress on operational costs moving forward, said La Flèche. Metro has previously said it is speeding up studies of automation as it considers options for offsetting wage increases, which it estimated would cost the company an additional $50 million in 2018.

Metro's second quarter sales decreased 0.1% to just under $2.9 billion, compared with just over $2.9 billion a year ago. Sales for stores open at least a year were down 1.2%, due in part to the timing of the holiday season. The week before Christmas fell in the first quarter this year and last year it fell in the second quarter. Had timing been different, same-store sales would have increased 1%.

While promotional intensity remains high on the discount side, La Flèche said the company was pleased with how its conventional banners performed in Ontario and Quebec. "The strength of the economy in both Quebec and Ontario, combined with low food inflation, currently favour the full-service supermarket, and we are pleased with the performance of the Metro banner in both provinces," he said.

Perhaps not in its favour, however, were the $25 gift cards Loblaw distributed to customers as a gesture of goodwill following its admitted participation in a bread price-fixing scheme. La Flèche said it was hard to measure the exact impact of the gift card program, "but a $25 gift card is material so there were a few weeks out there we think we felt it."

"We will defend market share and if there's competitive activity that's out there that we need to compete with, we will," he added. "But to say that it had no impact would be pushing it. To say how much exactly, hard to say. It's a competitive fact."

La Flèche didn't share specific metrics around Metro's e-commerce and click-and-collect business in Quebec, but said things were on track and that the company was working on launching a similar model in Ontario in fiscal 2019.

The night before Metro released its quarterly results, the Competition Bureau of Canada announced it had approved the company's $4.5-billion acquisition of the Jean Coutu Group, on the condition it sells 10 pharmacies in eight Quebec communities. La Flèche said Metro negotiated to retain all the pharmacies but was satisfied with the outcome.



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