Metro Earnings: New Distribution Capacity Drives up 2024 Cost but Aids Long-Term Efficiency Gains

We plan to maintain our CAD 69 fair value estimate for no-moat Metro after absorbing the grocer’s first-quarter results, with sales up 6.5% and adjusted EPS up 2%, in line with our estimates. We maintain our 2024 estimates for 3.4% sales growth on moderating food price inflation and a 1% decline in adjusted EPS due to costs associated with the newly opened distribution center in Quebec. Our 10-year forecasts for low-single-digit top-line growth and operating margins averaging 6.5% remain in place. Shares strike us as fairly valued.