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A Metro grocery store is seen in Montreal.Paul Chiasson/The Canadian Press

A financial boost from the acquisition of drugstore chain Jean Coutu has led Metro Inc. to raise its payment to shareholders, even as profits decline at the grocery and pharmacy retailer.

Metro said its annual payout target range will increase, from 20 per cent to 30 per cent of the prior year’s earnings, to 30 per cent to 40 per cent. It will pay a quarterly dividend of 22.5 cents a share, up 12.5 per cent from the previous year.

“Following the [2018] acquisition of Coutu, which is going well, and the cash flow profile generation of the Coutu assets, the company has evolved to a position where we can pay out a higher percentage of our previous year’s earnings as a dividend,” chief executive Eric La Flèche said on a call with analysts on Tuesday.

Still, Metro’s stock fell more than 3 per cent, or $1.92, to close Tuesday at $54.10, after the company reported a drop in its fiscal 2020 first-quarter profit and nearly flat sales.

The Montreal-based owner of grocery chains including Metro, Food Basics and Super C, as well as drugstores including Jean Coutu and Brunet, reported $4-billion in sales in the three months ended Dec. 21, 2019, up 1.3 per cent compared with the same period in the prior year. Metro’s net earnings fell 16.2 per cent to $170.2-million or 67 cents a share, compared with $203.1-million, or 79 cents, the year before. The company said its earnings were affected by a loss on the sale of its meal-kit service MissFresh, as well as gains on the sale of its stake in data centre firm Colo-D and on the sale of five pharmacies. Not including those factors, Metro said its adjusted net earnings would have been $180.9-million.

Metro sold MissFresh in December after the brand’s meal-kit service did not meet expectations.

“We thought there was more potential in the meal-kit business for us than we saw, especially at store level,” Mr. La Flèche said, adding that the company was not willing to continue the online subscription business for meal-kit delivery without those added sales. “It didn’t meet our objectives. We thought with the Metro customer ecosystem, we could leverage that to gain some sales on the meal kits. It was challenging.”

Same-store sales – a key retail metric that measures sales at stores open more than a year rather than measuring sales growth through store openings – were up 1.4 per cent in food. The same quarter in the prior year included one more day of holiday shopping than this year’s reporting period. That extra day would have pushed food sales growth to 2 per cent, the company said. Food prices are also going up: Metro said “food basket inflation” was roughly 2 per cent in the quarter. Same-store pharmacy sales grew 3.6 per cent, driven by a higher number of prescription drug sales and increased spending on those drugs, up 4.1 per cent; as well as a 2.7-per-cent increase in front-of-store sales not including prescriptions.

Metro has rolled out more than 100 automated self-checkout machines at its grocery stores, which contributed to cost savings last year, and plans to double that number in 2020. On the call Tuesday Mr. La Flèche said the company may also consider installing some at pharmacy locations with higher store traffic.

“It’s certainly meeting our objectives at this stage in terms of usage by customers and hours saved,” he said. “There’s more work to do.”

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