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Grocery store owner Metro Inc. saw profits jump by 8.6 per cent in the first quarter, even as supply-chain challenges intensified and rising costs for food and transportation have resulted in higher prices for customers.

Metro reported food basket inflation of 3.5 per cent in the first quarter. But chief executive officer Eric La Flèche said on Tuesday that the company has not passed on all of the cost increases that product vendors have imposed on retailers.

“We’re getting cost increases from our suppliers, and we are managing our prices at retail as best we can – adjusting our promotions, promoting private label so that the customers can find their way and make their budgets work. I clearly understand that it’s a challenge,” Mr. La Flèche told reporters at a virtual press conference Tuesday. “… But on the margin side, I can tell you that our gross margins in food are not necessarily up.”

Metro reported net earnings of $207.7-million, or 85 cents per share in the 12 weeks ended Dec. 18, 2021, compared to $191.2-million or 76 cents per share in the same period the prior year.

The higher profitability was partly due to lower expenses related to the COVID-19 pandemic compared to a year ago, Mr. La Flèche said.

While the Montreal-based retailer has been working to control costs where possible, like others it has faced growing expenses due to supply-chain disruptions, including rising transportation costs. Higher employee absenteeism has affected product suppliers, as well as retailers’ own operations at distribution centres and at stores, creating a “domino effect” in supply chains, he said.

“That said, there’s food on our shelves. There’s certainly less variety than there should be and we’re not as full as we’d like to be. But we’re not missing food out there,” Mr. La Flèche said.

As a result of added challenges in recent weeks partly due to the spread of the Omicron variant, Metro recently announced that at the end of February it will distribute bonuses to employees in the form of gift cards to its stores. The gift cards amount to $300 for full-time employees, $150 for those working 15 to 30 hours per week, and $75 for those working fewer hours. Asked whether Metro is considering permanent pay increases for staff as the risks from COVID-19 continue and as labour shortages affect the industry, Mr. La Flèche replied that most of Metro’s employees are unionized and that pay is governed by collective agreement negotiations.

“We have good relations with our unions, and whenever bargaining is up, we negotiate as best we can while remaining competitive in our industry,” he said. “We don’t operate in a vacuum. We operate against global players, most of them non-unionized by the way, and we provide, we think, good compensation with good benefits to our employees.”

On Monday, Metro boosted its dividend paid to shareholders by 10 per cent compared to the same period last year, to 27.5 cents per share.

At the company’s grocery stores, which include Metro, Food Basics and Super C, sales fell somewhat compared to a record year last year. Food same-store sales, an important industry metric that tracks store growth not affected by new store openings, were down 1.4 per cent in the quarter, and up 8.5 per cent compared to the same quarter two years ago. E-commerce sales were roughly flat compared with the same period last year, when a sharp rise demand for online ordering led to a 170-per-cent increase in digital sales.

Same-store sales at pharmacies including the Jean-Coutu chain grew by 7.7 per cent, an improvement from last year when sales were affected by a labour conflict at the Jean-Coutu distribution centre. The company said that more people visited physicians this year compared to last, leading to an increase in prescription drug sales, while sales of over-the-counter products such as cough and cold remedies also improved.

Metro reported that sales were up 0.9 per cent to $4.3-billion in the first quarter. The company expects restaurant closings and work-from-home orders to contribute to relatively stable grocery sales in the near term. Pharmacy sales are expected to increase as Metro-owned stores have begun selling rapid tests for COVID-19, and as the sale of non-essential goods are no longer restricted as they were in Quebec at this time last year.

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