Metro profits plunge as prolonged employee strike weighs on results

Grocery giant Metro Inc. MRU-T saw profits plunge by nearly 35 per cent in the third quarter, as a protracted strike by employees at its produce distribution centre in Greater Montreal weighed on the business.

The Montreal-based retailer reported Wednesday that the strike at its facility in Laval – which has dragged on for more than four months – has resulted in lost profits and direct costs of $66-million after tax.

Workers at the facility have demanded better wages and working conditions. In late June, Metro said the union had rejected a settlement offer it put forward, and had presented a counteroffer that the company then rejected.

“We’re prepared to resume discussions with the union, but these discussions have to take place in a realistic framework that reflects the competitive market that we compete in,” Metro chief executive officer Eric La Flèche said during a conference call to discuss the financial results on Wednesday.

Negotiations have been stalled for a few weeks, he said, adding that “the ball is in the union’s court” to come back to the bargaining table. The employees belong to the Syndicat des travailleur(euses) des épiciers unis Métro-Richelieu–CSN.

Mark Carney unveils $1-billion food strategy for Canada to offset inflation

But in the union’s view, Metro has “all the means necessary to solve the conflict,” Bertrand Guibord, president of Conseil central du Montréal métropolitain-CSN, the union’s regional organization, said in an interview with The Globe and Mail.

He cited the $1-billion in net earnings that Metro reported in its last fiscal year. “Now they have to recognize that not a single dollar of profit would be made without the work of the workers we represent.”

The disruption led to fruit and vegetable shortages in Metro’s Quebec stores, particularly in the early weeks of the strike in April. More recently, the company’s contingency plans have improved the number of products in stock, but the assortment continues to be affected, Mr. La Flèche said.

Net earnings fell to $211.3-million or $1 a share on a diluted basis in the quarter, compared with $323-million or $1.48 a share in the third quarter last year.

The lost sales and costs from the strike amounted to 32 cents a share after taxes, according to the company.

Metro’s sales grew to nearly $7-billion in the three months ended July 4, up 1.4 per cent compared with the same period last year.

But same-store sales – an important metric that compares sales at locations open for more than a year, and excludes the impact from new store openings – fell by 1.5 per cent at Metro’s grocery stores as the strike led to lower customer traffic.

Four weeks into its fourth quarter, Metro has seen same-store sales remain negative. Without a clear timeline for resolving the conflict, Metro expects a significant impact on the fourth-quarter results, Mr. La Flèche said.

Opinion: Canadians should not have to audit their grocery bills

Wednesday was the final earnings call for Mr. La Flèche as Metro CEO after 18 years leading the company. Metro previously announced that he would retire at the end of September, but would stay on as chairman of the board of directors. Current chief operating officer Marc Giroux will take over as CEO.

At Jean-Coutu and other pharmacies owned by Metro, same-store sales grew by 4.8 per cent compared the same period last year, largely because of an increase in prescription drug sales, as well as growth in cosmetics, health and beauty products.

On Wednesday, Metro also announced a restructuring of its Ontario store network and e-commerce distribution system.

The grocery sector is facing tough competition for customers, many of whom have flocked to discount stores to offset the pain of high food prices. Retailers have been converting some of their stores to lower-priced formats, as well as opening new locations to attract shoppers.

Metro plans to convert 10 of its stores in Ontario to its discount Food Basics banner, as well as closing one Ontario store and a satellite distribution warehouse.

As it seeks to cut costs, the company also plans to close a Montreal fulfilment centre dedicated to e-commerce deliveries. Instead, Metro will fulfill online orders directly from its stores, using third-party delivery services such as Uber Eats and SkipTheDishes.

These changes will improve the profitability of the e-commerce business and speed up order times, as customers are increasingly demanding same-day delivery, executives said on the call.

Metro recorded $25.7-million in restructuring expenses in the quarter, mostly related to termination benefits for employees whose jobs were eliminated as a result of the changes, as well as costs for site closings.

Accounting for these expenses after taxes, and other factors, adjusted net earnings declined to $262.6-million or $1.24 a diluted share in the third quarter, compared with $331.8-million or $1.52 a share in the period last year.