Metro (TSE:MRU) executives said the company delivered sales growth and higher adjusted earnings per share in its fiscal first quarter despite supply-chain disruption and ongoing inflation pressures, while noting that operations at its Toronto frozen food distribution center have now fully resumed.
Management discussed the first quarter ended December 20 on a call recorded January 27, 2026, outlining the financial impacts of the distribution center shutdown, trends in customer behavior, supplier cost pressures, and continued investment in store growth and supply chain capabilities.
Distribution center disruption resolved; costs removed from adjusted results
The direct costs tied to the incident and contingency plan totaled CAD 21.6 million pre-tax (or CAD 15.9 million post-tax) in the quarter, and management said results were adjusted for those costs only. During the Q&A, CEO Eric La Flèche said the disruption contributed to lost sales and margin on items that could not be fully supplied, estimating the effect at about 30 basis points on food same-store sales, with no adjustment made for that impact.
In response to questions about how the issue was resolved, La Flèche described a “big mechanical issue” involving two heat exchangers, with one failing and contaminating the other. He said the failed unit was replaced with another using a different technology, leaving the facility operating with “two different technologies” as a risk mitigation measure. He added that the root cause was still being investigated, but said management is confident the risk is “managed well.”
Quarterly results: sales up 3.3%; adjusted EPS up 5.5%
Amyot reported total sales of CAD 5.3 billion, up 3.3% year-over-year. Sales were negatively affected by two timing and operational items: the transfer of “one significant pre-Christmas shopping day” into the second quarter, and the frozen distribution center shutdown.
Food same-store sales increased 1.6% (or 1.9% when adjusted for the Christmas shift). Pharmacy same-store sales rose 3.9%, driven by 5.1% prescription sales growth and 1.3% front-store growth; front-store same-store sales were 1.7% when adjusted for the Christmas shift.
Gross margin totaled CAD 1.04 billion, representing 19.7% of sales, unchanged from the same quarter last year. Operating expenses rose to CAD 557.6 million, up 5.5%, or 10.5% of sales compared to 10.3% a year ago. Amyot said operating expenses were “unfavorably impacted by CAD 20.8 million of direct costs related to the temporary shutdown” of the freezer; excluding those costs, operating expenses rose 1.6% and represented 10.2% of sales. (He also noted CAD 0.8 million of direct costs related to the freezer issue and losses on asset disposal.)
EBITDA was CAD 482.6 million (up 0.2%) at 9.1% of sales. On an adjusted basis, EBITDA was CAD 504.2 million (up 4.7%) at 9.5% of sales, an increase of 13 basis points. Adjusted net earnings were CAD 248.7 million, up 1.3%, while adjusted diluted EPS was CAD 1.16, up 5.5% from CAD 1.10.
Depreciation and amortization increased by CAD 10 million to CAD 143.6 million, which Amyot attributed to higher retail investments, new stores opened last year, right-of-use assets, and commissioned supply chain investments including automation technology in the pharmacy division. Net financial costs were CAD 37.3 million, compared to CAD 30.7 million last year, driven by higher interest on net debt and a prior-year interest receivable tied to an income tax position. The effective tax rate rose to 25% from 18.2% last year, largely due to the prior-year tax resolution and a smaller Terrebonne distribution center tax holiday benefit this quarter.
Inflation, promotions, and competition: “intense but rational”
On consumer behavior, La Flèche said management has not seen a “noticeable change” beyond previously discussed trends: discount is growing faster than conventional, customers are buying more on promotion, and private label is outpacing national brands. He noted Metro’s internal food basket inflation was below the reported food CPI of 4.1%, adding that the CPI measure was “somewhat inflated” due to last year’s GST holiday.
On supplier cost pressure, La Flèche said inflation is visible “on the fresh side of the store, week in, week out,” particularly in meat categories including beef, poultry, and pork, calling procurement “very, very challenging.” He also said grocery price increase requests were “consistent with prior years” in number, but that the “quantum of the ask” has been higher, citing commodity-related pressures such as aluminum, chocolate, and coffee. He said Metro is pushing back and negotiating, while acknowledging there is “gonna be inflation going forward.”
Asked about gross margin drivers, La Flèche pointed to promotional intensity, supplier cost increases, and the competitive marketplace as factors that can shift margins quarter to quarter. He also said prior warehouse investments have supported gross margin by reducing labor hours in cost of goods sold. He said the Toronto freezer issue was a “drag” on gross margin in the quarter, but did not provide a basis-point estimate and declined to offer direction on whether margin will rise in coming quarters.
Regarding competition, La Flèche said the environment remains “intense but rational,” and noted that in Metro’s plan for the year, competitive impacts are “more” in Quebec than Ontario due to new square footage (including Metro’s own and competitors’), though he characterized the wave as one that will “pass.” He also said industry square footage growth has accelerated after several years of low growth, and he framed Metro’s discount-focused expansion—particularly in Ontario where it has lower penetration—as an opportunity.
Investments, store openings, online growth, and capital allocation
Metro opened three food stores and completed major expansion and renovation projects at three other locations in the quarter, for a net increase of 88,600 square feet, or 0.4% of its food retail network square footage. Management also said it opened three new discount stores in the quarter and remains on track with a fiscal 2026 plan calling for “a dozen” discount stores, including conversions, along with major renovations.
Chief Operating Officer Marc Giroux said the company is satisfied with store openings overall, with most exceeding expectations and others meeting expectations. La Flèche also highlighted online momentum, reporting 25.8% online sales growth driven by third-party marketplaces, click-and-collect ramp-up, and the launch of delivery in discount banners.
In pharmacy, La Flèche said prescription sales growth was supported by organic growth, specialty medications, GLP-1s, and clinical services. Pharmacy President Jean-Michel Coutu addressed questions on potential generic versions of Ozempic, saying delays and non-compliance notices have pushed timelines somewhat, but management is “expecting something earlier in 2026.” Coutu said the GLP-1 category is dynamic and could see growing demand alongside new therapies, while noting Metro is evaluating product opportunities but would not disclose plans.
Capital spending in the quarter was CAD 61.9 million (down from CAD 89.3 million a year ago). Amyot said Metro expects fiscal 2026 CapEx of approximately CAD 550 million as it continues investing in the retail network. On supply chain automation in the pharmacy division, Amyot said Metro expects productivity gains and return on investment over time, reiterating a targeted “double digit cash-on-cash after tax” return on those investments.
On shareholder returns, Amyot said Metro repurchased 1 million shares under its normal course issuer bid as of January 16 for CAD 98.7 million at an average price of CAD 98.72. The board declared a quarterly dividend of CAD 0.4075 per share (annualized at CAD 1.63), a 10.1% increase and the company’s 32nd consecutive year of dividend growth. Management said the dividend represents about 33% of last year’s adjusted net earnings, consistent with policy. Amyot also said Metro continues to contemplate gradually increasing leverage over time to support additional share repurchases.
Metro said it will report second-quarter results on April 10, 2026.
About Metro (TSE:MRU)
Metro is one of the largest grocery retailers in Canada. With its 2018 acquisition of Jean Coutu, it also boasts a meaningful drugstore footprint. Noteworthy grocery banners include Metro, Metro Plus, Super C, and Food Basics, while its pharmacies primarily operate under the Jean Coutu and Brunet trademarks. It utilizes an array of business models, but it most frequently acts as either a retailer, operating individual stores, or a franchiser, licensing its trademarks and supplying merchandise to franchisees.
