Company Reports

Metro's third-quarter results featured a 1.4% sales increase and adjusted EPS of CAD 1.24 (down 18.4%). Food same-store sales fell 1.5%, while pharmacy same-store sales grew 4.8%. Gross margin contracted 100 basis points from an ongoing labor strike at its Laval produce distribution center.

Metro’s strategy centers on leveraging a dense regional network across Quebec and Ontario through conventional, discount, specialty, and pharmacy banners. We view this geographic discipline as sensible, allowing the firm to tailor merchandising, consolidate distribution, and avoid the complexity of national expansion. Still, concentration in two mature markets limits its growth runway and leaves performance dependent on execution rather than a differentiated model.

Metro has cultivated a high-density regional footprint across Eastern Canada and enhanced its margin profile by expanding into pharmacy. However, the firm's lack of global procurement scale has left it vulnerable in an increasingly price-competitive retail environment.

Metro announced that CEO Eric La Flèche will pass the torch to Marc Giroux, current chief operating officer, effective as of Sept. 27. La Flèche will be appointed as chairman of the board of directors, which should help with the transition.

As the smallest of the three pure-play grocery chains in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong store operations. However, similar to larger peer no-moat Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

As the smallest of the three pure-play grocery chains in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong store operations. However, similar to larger peer no-moat Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

Metro's first-quarter sales grew 3.3%, driven by same-store sales growth of 1.6% in food and 5.1% in pharmacy. The operating margin decreased 20 basis points from last year to 6.4% due to a 30-basis-point headwind from the temporary shutdown of a frozen distribution center.

Metro's sales grew 3.4% in the fourth quarter of fiscal 2025, driven by same-store sales growth of 1.6% and 4.8%, respectively, in food retail and pharmacy, while floor space grew 1.4%. Adjusted EPS rose 10.8% on margin lift from distribution efficiency gains and a 3% reduction in share count.

As the smallest of the three pure-play grocery chains in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong store operations. However, similar to larger peer no-moat Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

Metro's sales grew 3% in the third quarter of fiscal 2025, driven by same-store sales growth of 1.9% and 5.5%, respectively, in groceries and pharmacy, while floor space growth was under 1%. Adjusted operating profit grew 6% as operating margin widened 20 basis points to 6.9%.

As the smallest of the three pure-play grocery chains in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong execution. However, similar to larger peer no-moat Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

Metro’s fiscal second-quarter results included a 5.5% sales expansion to CAD 4.9 billion and a 12% rise in adjusted earnings per share to CAD 1.02.

As the smallest of the three pure-play grocery chains in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong execution. However, similar to larger rival no-moat Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

No-moat Canadian grocer Metro posted good first-quarter results that include increases of 3% and 17%, respectively, in sales and net profit. As heavy distribution center investments and related duplicate costs that weighed on results last year are in the rearview mirror, we expect profit growth to pick up steadily in the coming quarters and continue to view our fiscal 2025 estimates for a 9% net profit growth on a 3% sales expansion as achievable. Over the longer term, however, we remain cautious about the grocer’s prospects, given the lack of durable differentiation in supermarkets. We don’t plan any material changes to our 10-year forecasts for low-single-digit top-line growth and operating margins in the 6% to 7% range, or to our CAD 71 fair value estimate, rendering shares overvalued. After a 24% rise in the past year, the stock looks expensive trading at 19 times 2025 earnings per share.

As the smallest of the three pure-play food retailers in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong execution. However, similar to larger rival no-moat Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

We plan to maintain our CAD 70 fair value estimate for no-moat Metro after absorbing mixed fiscal 2024 results. Reported sales rose 2.4% to CAD 21 billion, missing our 3% sales growth estimate, while adjusted earnings per share of CAD 4.30 edged our CAD 4.26 forecast as repurchases led to a lower share count than our estimate. Now that the new Quebec distribution center is fully operational, we expect the duplicate costs that had pressured Metro in 2024 will ease steadily in the coming quarters, providing a lift to profits. As such, we expect Metro to increase sales and adjusted EPS by 3% and 10%, respectively, in fiscal 2025. Our 10-year forecasts for low-single-digit top-line growth and operating margins in the 6% to 7% range remain in place, and we view shares as overvalued.

As the smallest of the three pure-play food retailers in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong execution. However, similar to larger rival Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

We plan to maintain our CAD 70 per share fair value estimate for no-moat Metro after absorbing its third-quarter results. Sales grew 3.5% amid cooling food price inflation, while adjusted earnings per share were flat as duplication of costs during the distribution capacity ramp-up weighed on profits. Our 2024 projection for 3% sales growth and a 1% decline in adjusted EPS is unchanged, with the new Quebec distribution center now fully operational. Our 10-year forecasts for low-single-digit top-line growth and operating margins averaging 6.5% remain in place, and we view shares as overvalued.

As the smallest of the three pure-play food retailers in Canada, Metro has done a commendable job fending off competition in its core Ontario and Quebec markets with prudent merchandising strategies and strong execution. However, similar to larger rival Loblaw, we think ferocious price competition in the commoditized grocery market has prevented Metro from amassing any intangible assets or cost advantage to warrant an economic moat rating.

We plan to maintain our CAD 69 fair value estimate for no-moat Metro after absorbing its second-quarter results, with sales up 2% and adjusted EPS down 5%. With the transition to the new Quebec distribution center progressing well, we are maintaining our 2024 projection for a 3% sales growth (on flattish volumes) and a 1% decline in adjusted EPS. Our 10-year forecast for low-single-digit top-line growth and an average operating margin of 6.5% remains in place, and we view shares as slightly undervalued.