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UPDATE 1-Tough competition hits Canadian grocer Metro's profit

Wednesday, 13 Nov 2013 | 8:34 AM ET

* Adjusted profit C$1.19 vs est. C$1.22

* Same-store sales down 1.8 percent

Nov 13 (Reuters) - Metro Inc, Canada's No.3 grocer, posted a larger-than-expected 40 percent drop in quarterly profit as expanding U.S. retailers provided "intense competition" in its home market.

Metro Inc said its fourth-quarter sales were hurt by competition, especially in Ontario, where rival retailers have opened more stores.

Wal-Mart Stores Inc is expanding in Canada and Target Corp, which entered the Canadian market this year, has said the country will be key to its growth over the next five years.

Target plans to have 124 Canadian stores by the end of the year.

To cope with increased competition, Metro is reorganizing its Ontario store network and plans to invest nearly C$250 million ($238.25 million) there in 2014.

The company, which runs Adonis ethnic food stores and the Brunet pharmacy chain, said in August that it would close or convert 15 of its stores in Ontario to cut costs.

The company is converting about half a dozen Metro stores into Food Basics discount outlets.

"We are confident that these measures, coupled with efficient merchandising strategies, will allow us to continue to grow in the next fiscal year," Chief Executive Eric La FlEeche said.

Metro, whose main domestic competitors are Loblaw Cos Ltd and Empire Co Ltd's Sobeys, also said in August that it would operate Target's in-store pharmacies in Quebec.

Canada's largest grocer Loblaw, which is buying Shoppers Drug Mart Corp for C$12.4 billion, reported a 29 percent fall in quarterly profit on Wednesday.

Empire Co is buying Safeway Inc's assets in Canada to cement its position as Canada's No.2 grocer.

Metro's net earnings fell to C$83.6 million, or 88 Canadian cents a share, in the fourth quarter from C$145.1 million, or C$1.46 a share, a year earlier.

Adjusted profit was C$1.19, below analysts' average estimate of C$1.22, according to Thomson Reuters I/B/E/S.

Sales fell nearly 9 percent to C$2.61 billion in the fourth quarter ended Sept. 30, which had 12 weeks compared with 13 weeks the previous year.

Sales at established stores, a key measure for retailers, fell 1.8 percent.

Metro shares have fallen nearly 10 percent in the last three months and closed at C$65.71 on the Toronto Stock Exchange on Tuesday.

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