Metro Continues to Face Numerous Industry Headwinds; Shares Overvalued
Metro continued to face numerous industry headwinds, including higher costs from labor, transportation, and tariffs as well as an intense promotional environment, during the third quarter, supporting our no-moat rating. Metro's 13.8% (7% year to date) sales growth and 19.4% (19.6%) gross margins are tracking near our 2018 forecasts for 12% and 19.6% (down 10 basis points). As a result, we do not plan a material change to our CAD 35.50 fair value estimate, which forecasts low-single-digit organic...Metro is a food retailer and distributor that operates supermarkets, discount stores and drugstores in Canada. Co. operated 343 supermarkets under the Metro and Metro Plus banners, nine stores under the Adonis banner, and 213 discount stores under the Super C and Food Basics banners. Co. also acts as a distributor for medium-surface food stores and convenience stores. Co. also acts as franchisor and distributor for 181 franchised Brunet Plus, Brunet, Brunet Clinique, and Clini Plus drugstores, owned by independent pharmacists; and operated 73 drugstores under the Metro Pharmacy and Drug Basics banners. Co. also supplies non-franchised drugstores and various health centres.
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