(Deletes paragraph that quoted analyst Peter Sklar sayingdividend increase traditionally took place in the fourth quarterafter Sklar corrected his note on the issue)
By Solarina Ho
TORONTO, Nov 13 (Reuters) - Two big Canadian grocersreported steep declines in quarterly profit on Wednesday in theface of escalating competition from the likes of Wal-Mart StoresInc and Target Corp, a new entrant to theCanadian market.
Loblaw Cos Ltd, Canada's largest grocer, reported a29 percent decline in profit for the September quarter andlowered its earnings outlook, while smaller rival Metro Inc reported a larger-than-expected 40 percent drop inprofit.
"The outlook is still very competitive. People are chasingsales at considerable expense. And we have to be careful betweenchasing those sales, spending too much money and not getting anyreturns," Metro's chief executive, Eric La Fleche, said.
Stock of both grocers fell as much as 6 percent. Shares ofrival Empire Co Ltd, which operates Sobeys stores,also fell, shedding more than 2.5 percent.
Sobeys cemented its position as Loblaw's closest rivalearlier this year with a $5.7 billion deal for Safeway Inc's Canadian assets. Shortly after, Loblaw announced aC$12.4 billion ($11.82 billion) deal to buy Canada's largestpharmacy chain, Shoppers Drug Mart.
Shoppers reported slightly lower quarterly net income onTuesday, due in part to charges from the pending acquisition.
Loblaw said profit was hurt by a later Thanksgiving holidayand a decline in sales at its drugstores. Canadian Thanksgivingis in October, more than a month ahead of the bigger U.S.holiday, while pharmacies are feeling the squeeze fromregulatory changes that cap generic drug prices.
It said start-up and other costs related to the spin-off ofits real estate assets into a real estate investment trust,which was then taken public, Choice Properties, andrestructuring charges also dented profit.
Toronto-based Loblaw cut its full-year earnings outlook dueto higher-than-expected investments in store expansions andcompetitive pressure in certain food categories.
"I'm disappointed ... we will not be able to deliver on theexpectations we set last quarter," said Loblaw Chief FinancialOfficer Sarah Davis. "The actual intensity we experienced in Q3was greater than projected and caused actual performance to bebelow our expectations."
The grocer, which also owns the Joe Fresh clothing brand,expects flat 2013 operating income. In July, it forecast incomewould grow in the mid-single digits percentage-wise.
It also said it was expecting marginal growth at establishedstores in the fourth quarter. In 2014, the company wasforecasting the first half of the year to be more challengingthan the second half.
Montreal-based Metro, Canada's No. 3 supermarket operator,said expanding U.S. retailers provided "intense competition,"especially in the populous province of Ontario.
In response to the competition, Metro plans to invest nearlyC$250 million ($240 million) in Ontario in 2014.
"Overall, we view Metro's results as disappointing ... andprice investments will inevitably be required for Metro todefend its market position," said BMO Capital Markets analystPeter Sklar in a client note.
CRUNCHING THE NUMBERS
Loblaw net income fell to C$154 million ($147 million), or55 Canadian cents per share, during the third quarter, fromC$217 million, or 77 Canadian cents per share, in the sameperiod last year.
Excluding certain one-time items, profit was 78 Canadiancents per share, falling short of analysts' average estimates of80 Canadian cents, according to Thomson Reuters I/B/E/S.
Total revenue rose nearly 2 percent to C$10.01 billion, justshort of analysts' average forecast of C$10.04 billion.
Sales at established stores, a key measure for retailers,climbed 0.4 percent.
Loblaw shares were down 6 percent at C$44.99 late morning.
Metro's net earnings fell to C$83.6 million, or 88 Canadiancents a share, in its fiscal fourth quarter ended Sept. 30 fromC$145.1 million, or C$1.46 a share, a year earlier.
Adjusted profit was C$1.19, below analysts' average estimateof C$1.22.
Sales fell nearly 9 percent to C$2.61 billion in thequarter, which had 12 weeks compared with 13 weeks the previousyear, and same store sales were down 1.8 percent.
Metro's stock was down 5.3 percent at C$62.26, its lowestlevel since early February.
($1 = 1.0493 Canadian dollars) (Additional reporting by Garima Goel, Sneha Banerjee, SwethaGopinath and Narottam Medhora in Bangalore; Editing by JanetGuttsman and Leslie Adler)
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