Metro to reorganize Ontario store network, partner with Target in Quebec

MONTREAL – Metro Inc. plans to reorganize its Ontario grocery retail network over the coming months and assist with Target’s Canadian expansion by operating the U.S. retailer’s in-store pharmacies in Quebec under the Brunet banner.

The Montreal-based company (TSX:MRU), one of Canada’s largest grocery retailers, says 15 of its Metro stores in Ontario will be closed or converted to the the Food Basics discount banner over the coming months.

Metro says it will offer buyouts to an unspecified number unionized employees at the Ontario stores, but didn’t release details about locations or number of people who will be let go.

Metro, which has about 65,000 employees in Ontario and Quebec, has more than 600 food stores under several banners including Metro and Food Basics and about 250 pharmacy stores under the Brunet and other banners.

Target Corp. (NYSE:TGT) will be partnering with one of Metro’s subsidiaries under an agreement announced Wednesday by the two companies.

“We’re pleased with the positive response we’ve received from guests at the 62 in-store pharmacies that are currently in operation throughout Canada, and look forward to delivering superior, patient-focused healthcare to our guests in Quebec,” said Tony Fisher, president of Target Canada.

“Brunet’s reputation as a leader in promoting patient health and well-being, combined with its specialized product offering, makes Brunet the ideal strategic partner to help us deliver outstanding patient care in Quebec.”

The Minneapolis-based discount retailer, which has acquired much of the space formerly occupied by Zellers, says it plans to open its first 25 stores in Quebec this fall.

Metrol’s Ontario reorganization was announced Wednesday in Metro’s latest quarterly report, which says it had $149.8 million of net earnings in its third quarter, ended July 6.

The profit was up about four per cent from $144.4 million the same time last year but its sales slipped by nearly one per cent or $26 million to $3.573 billion from $3.599 billion.

The company says its next quarter will recognize a $40-million restructuring charge related to the Ontario network reorganization.

“We achieved net earnings growth in the third quarter due to good margin management and strong operating cost control in a difficult competitive environment, particularly in Ontario,” said Metro CEO Eric La Fleche

“In order to better meet customer needs and reduce operating costs, we will carry out a reorganization of our Ontario store network over the next few months that will affect some 15 stores and entail a restructuring charge of about $40 million in the next quarter.

“We are confident that these investments in our network, combined with our merchandising programs will allow us to continue to grow despite increased competition.”

La Fleche was expected to address analysts in a conference call later in the morning.

Metro’s adjusted earnings from continuing operations were about the same, resulting in $1.55 per share of adjusted EPS, up from $1.46 a year last year.

The third-quarter results were in line with analyst estimates compiled by Thomson Reuters.

In addition to intense competition particularly in Ontario from supermarket rivals such as Loblaw’s (TSX:L) and Sobeys (TSX:EMP), Metro’s discount banner Food Basics is fending off expansion by Walmart (NYSE:TGT) and Target.

Analysts say the Montreal-based supermarket chain is facing increased pressure to expand its reach following recent deals by Loblaw’s to purchase Shoppers Drug Mart (TSX:SC) and Sobeys to buy Safeway Canada based in Western Canada. Quebec-based Jean Coutu Group (TSX:PJC.A) has been named as one of the likely takeover targets.

Metro is Quebec’s leading grocery chain with nearly 34 per cent market share. Its banners banners include Metro, Metro Plus, GP, Super C and Food Basics, as well as Brunet, Brunet Plus, Clini Plus, The Pharmacy and Drug Basics.