08/09/2012 08:05 EDT | Updated 10/09/2012 05:12 EDT

Grocery giant Metro gets a Q3 sales lift from upgrade fresh food offering

MONTREAL - Upgraded fresh food offerings are convincing customers to fill their baskets and give supermarket chain Metro Inc. a lift in sales despite lower prices, the company said Thursday.

Tonnage sales of fresh food was up mid-single digits in its third quarter, which helped to increase same store sales by one per cent and beat its rival Loblaws (TSX:L).

"The impact is very positive," president and CEO Eric La Fleche said Thursday during a conference call about its third-quarter results.

"We get instant positive lift in our customer satisfaction surveys as soon as we remerchandise the produce section of our stores."

Metro (TSX:MRU) has updated all its conventional banner stores in Ontario, 23 Food Basics discount outlets and half its stores in Quebec. An additional 40 Food Basics upgrades and the remaining Quebec Metro and Super C stores are set for next year.

The change is a key strategic move by the chain to entice prudent shoppers to spend a little more.

The Montreal-based grocery store company earned $144.4 million or $1.43 per diluted share in the period ended June 30, up from $127.1 million or $1.23 per diluted share a year ago.

Excluding a non-recurring tax charge of $3 million, the company reported a profit of $147.4 million or $1.46 per diluted share. The average analyst estimate had been for a profit of $1.37 per share, according to Thomson Reuters.

Revenue for the quarter was up 3.8 per cent compared with the same time last year, rising to $3.7 billion.

Part of the improvement was due to Metro's stake in Alimentation Couche-Tard (TSX:ATD.B), which operates convenience stores in Canada, the United States and Europe.

Metro's share of Couche-Tard's earnings increased to $13.6 million in the quarter, about double the $6.9 million reported a year earlier.

La Fleche said he's very pleased with the quarter's results.

"Our customer-focused strategies, effective merchandising and our strong execution in delivering a superior shopping experience allowed us to continue to grow the business," he told analysts.

The chain was also helped by its partnership with Mediterranean-style retailer Adonis in Quebec and loyalty programs.

Adonis stores and distributor Phoenicia's third quarter sales were $81.3 million.

La Fleche said the competitive environment remains similar to last quarter.

"Consumers continue to remain prudent and their search for value is reflected in increased promotional sales and private label sales across all our all banners."

Walmart's opening of Superstores in Quebec — nine to date — is have a "modest and manageable" impact on Metro's sales, La Fleche added.

Irene Nattel of RBC Capital Markets said the results were solid.

"In a quarter where cautious consumer spending is moderating performance across our universe of coverage, we believe Metro's solid third-quarter results despite intense competition reinforce management's ability to drive both its offering and cost base to deliver for investors," she wrote in a report.

Metro is Quebec's leading grocery chain with nearly 34 per cent market share. It has more than 65,000 employees in Quebec and Ontario.

The Montreal-based company operates a network of close to 600 food stores under several banners including Metro, Metro Plus, GP, Super C and Food Basics, as well as over 250 drugstores under the Brunet, Brunet Plus, Clini Plus, The Pharmacy and Drug Basics banners.

On the Toronto Stock Exchange, Metro briefly hit a new 52-week high, eventually closing at $58.13, up $1.61 or 2.85 per cent in Thursday trading.