METRO INC. (Toronto symbol MRU; www.metro.ca) operates about 600 supermarkets in Quebec and Ontario. It also has over 250 drugstores that operate under the Brunet, The Pharmacy and Drug Basics banners.
Metro continues to cut costs in response to competition from larger Canadian chains, like Loblaw and Sobeys, and big box stores like Wal-Mart and Costco. It is also converting some of its underperforming Metro outlets in Ontario to the faster-growing Food Basics discount banner.
In its fiscal 2014 second quarter, which ended March 15, 2014, Metro’s earnings rose 0.5%, to $96.9 million from $96.4 million a year earlier. In the last six months, the company has spent $301.8 million on share buybacks. Due to fewer shares outstanding, per-share earnings rose 9.2%, to $1.07 from $0.98.
Sales rose 1.7%, to $2.55 billion from $2.51 billion. Same-store sales gained 1.0%.
Stock investing: Stake in Couche-Tard an underappreciated asset
Metro’s 5.7% stake in Alimentation Couche-Tard (Toronto symbol ATD.B) is an underappreciated asset. (Couche-Tard, which operates convenience stores in North America and Norway, is a recommendation of Stock Pickers Digest, our newsletter for aggressive investing.) In the latest quarter, this stake added $11.0 million to Metro’s pre-tax earnings, up 37.5% from $8.0 million a year ago.
The company’s long-term debt of $846.5 million is 14% of its market cap. It could seek to enhance its value by buying back more shares or raising its $1.20 dividend, which yields 1.8%.
In the latest edition of The Successful Investor, we look at Metro’s growth prospects based on its response to heightened competition in the grocery business, including potential acquisitions. We conclude with our clear buy-sell-hold advice on the stock.
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