Tough competition hits Canadian grocer Metro's profit


* 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 quarterlyprofit as expanding U.S. retailers provided "intensecompetition" in its home market.

Metro Inc said its fourth-quarter sales were hurt bycompetition, especially in Ontario, where rival retailers haveopened more stores.

Wal-Mart Stores Inc is expanding in Canada andTarget Corp, which entered the Canadian market thisyear, has said the country will be key to its growth over thenext five years.

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

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

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

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

"We are confident that these measures, coupled withefficient merchandising strategies, will allow us to continue togrow in the next fiscal year," Chief Executive Eric La Flèchesaid.

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

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

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

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

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

Sales fell nearly 9 percent to C$2.61 billion in the fourthquarter ended Sept. 30, which had 12 weeks compared with 13weeks 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 threemonths and closed at C$65.71 on the Toronto Stock Exchange onTuesday.

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