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Grocery chain Metro posts flat Q3 profits, says competition easing in Ontario

Metro Inc. (TSX:MRU) says its profits were essentially flat in the latest quarter, even though sales at its supermarkets grew amid what it called an "intensely competitive" environment.

The Montreal-based grocery chain reported third-quarter net earnings of $144.5 million for the three months ended July 5.

The profits amounted to $1.63 in diluted earnings per share, compared with $144.4 million in net earnings, or $1.49 per diluted share, for the same quarter of 2013.

Sales were up 1.4 per cent to $3.62 billion from $3.57 billion year-over-year, helped by a reorganization of its Ontario stores. Same-store sales, which refers to stores that have been open for at least a year and an important metric in the retail industry, climbed one per cent from the same quarter last year.

"We are satisfied with our third quarter results achieved in an environment that remains challenging," said Metro CEO Eric La Fleche in a statement on Wednesday.

Shares in the company closed down $1.79, or 2.5 per cent, to $69.51 on the Toronto Stock Exchange.

Metro, Canada's third-largest supermarket chain, has been facing heightened competition, particularly in Ontario, from supermarket rivals such as Loblaws (TSX:L) and Sobeys (TSX:EMP), while its discount banner Food Basics is fending off expansion by Walmart (NYSE:TGT) and the first wave of openings by U.S. retailer Target. The company said it saw competition ease in Ontario in the latest quarter, as its rivals opened less stores.

In June, Metro bought a majority stake in leading Quebec bakery Premiere Moisson. The Colpron-Fiset family, who founded the bakery in 1992, will retain 25 per cent of the company and continue to manage its 23 stores and three production plants. Metro did not disclose the purchase price.

The grocery chain said it plans on helping Premiere Moisson expand its artisan breads across Quebec and eventually Ontario. In addition to crusty baguettes and other bread, Premiere Moisson sells premium cakes and pastries, gluten-free products, deli items and various ready-to-eat dishes.

The bakery sector has been an area where grocers and food companies have been looking for diversification amid intense competition. Last month, George Weston Ltd. said it was betting on gluten-free baked goods as a way to lure in more customers.

RBC Dominion Securities analyst Irene Nattel said Metro's results were in line with expectations. Nattel had expected $1.62 in diluted earnings per share while the analysts' consensus was $1.64.

"Overall we would say management's tone was better than prior quarters as MRU (Metro) strategies are gaining traction and relative performance is improving as well," she wrote in a note following the company's quarterly earnings call.

Metro operates a network of almost 600 food stores under several banners including Metro, Metro Plus, Super C and Food Basics, as well as over 250 drugstores. It has annual sales of more than $11 billion and employs more than 65,000 people.

Follow @LindaNguyenTO on Twitter.

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