2023 Second Quarter Results

INTERIM REPORT

12-week period ended March 11, 2023

2nd Quarter 2023

HIGHLIGHTS

2023 SECOND QUARTER

• Sales of $4,554.5 million, up 6.6%
• Food same-store sales(1) up 5.8%
• Pharmacy same-store sales(1) up 7.3%
• Net earnings of $218.8 million, up 10.4%, and adjusted net earnings(1) of $225.4 million, up 10.1%
• Fully diluted net earnings per share of $0.93, up 13.4%, and adjusted fully diluted net earnings per share(1) of $0.96, up 14.3%

REPORT TO SHAREHOLDERS

Dear Shareholders,

I am pleased to present our interim report for the second quarter of Fiscal 2023 ended March 11, 2023.

Sales in the second quarter of Fiscal 2023 remained strong, reaching $4,554.5 million, up 6.6% compared to elevated sales last year due to COVID-related restrictions in both provinces. Food same-store sales were up 5.8% versus the same quarter last year mainly due to higher inflation this quarter (0.8% in the second quarter of 2022). Online food sales(1) were up 41.0% versus last year (6.0% in the second quarter of 2022), mostly driven by new partnership sales. Our food basket inflation was 9.0%, down slightly from the previous quarter. Pharmacy same-store sales were up 7.3% (9.4% in the second quarter of 2022), with a 5.0% increase in prescription drugs(1) and a 12.2% increase in front-store sales(1), primarily driven by over-the-counter products, cosmetics and health and beauty.

Second quarter net earnings were $218.8 million in Fiscal 2023 compared with $198.1 million in 2022 and fully diluted net earnings per share were $0.93 compared with $0.82 in 2022, up 10.4% and 13.4% respectively. Taking into account adjustment for the 2023 and 2022 second quarters, the after-tax amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition, adjusted net earnings(1) for the second quarter of Fiscal 2023 totalled $225.4 million compared with $204.7 million for the corresponding quarter of 2022 and adjusted fully diluted net earnings per share(1) amounted to $0.96 versus $0.84, up 10.1% and 14.3% respectively.

On April 18, 2023, the Board of Directors declared a quarterly dividend of $0.3025 per share, the same amount declared last quarter.

We are pleased with our results in the second quarter as our teams continued to deliver value to our customers in the current high food inflation environment with competitive everyday prices, growing private label sales and effective promotional strategies. We will continue to invest in our people, our retail network and the modernization of our supply chain, and we are well-positioned to achieve our long-term growth objectives(2). Finally, we are looking forward to the launch of our new loyalty program MOİ later this spring(2).

Eric La Flèche

President and Chief Executive Officer

April 19, 2023

1. See table in section "Operating Results" and section on "Non-GAAP and Other Financial Measurements"
2. See section on "Forward-looking Information"

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MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis (MD&A) sets out the financial position and consolidated results of METRO INC. on March 11, 2023 and for the 12 and 24-week periods then ended. It should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes in this interim report.

The unaudited interim condensed consolidated financial statements for the 12 and 24-week periods ended March 11, 2023 have been prepared by management in accordance with IAS 34 Interim Financial Reporting. They should be read in conjunction with the audited annual consolidated financial statements and accompanying notes and the MD&A presented in the Corporation's 2022 Annual Report. Unless otherwise stated, the interim report is based on information as at March 31, 2023.

Additional information, including the Certification of Interim Filings for the quarter ended March 11, 2023 signed by the President and Chief Executive Officer and the Executive Vice-President, Chief Financial Officer and Treasurer, will also be available on the SEDAR website at: www.sedar.com.

OPERATING RESULTS

SALES

Sales in the second quarter of Fiscal 2023 remained strong, reaching $4,554.5 million, up 6.6% compared to elevated sales last year due to COVID-related restrictions in both provinces. Food same-store sales were up 5.8% versus the same quarter last year mainly due to higher inflation this quarter (0.8% in the second quarter of 2022). Online food sales(1) were up 41.0% versus last year (6.0% in the second quarter of 2022), mostly driven by new partnership sales. Our food basket inflation was 9.0%, down slightly from the previous quarter. Pharmacy same-store sales were up 7.3% (9.4% in the second quarter of 2022), with a 5.0% increase in prescription drugs(1) and a 12.2% increase in front-store sales(1), primarily driven by over-the-counter products, cosmetics and health and beauty.

Sales in the first 24 weeks of Fiscal 2023 totalled $9,225.4 million, up 7.4% compared to $8,590.8 million for the corresponding period of 2022.

OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

This earnings measurement excludes financial costs, taxes, depreciation and amortization.

Operating income before depreciation and amortization for the second quarter of Fiscal 2023 totalled $447.3 million, or 9.8% of sales, an increase of 8.0% versus the corresponding quarter of Fiscal 2022. Operating income before depreciation and amortization for the first 24 weeks of Fiscal 2023 totalled $909.3 million or 9.9% of sales, up 8.5% versus the corresponding period of 2022.

Gross margin(1) for the second quarter and the first 24 weeks of Fiscal 2023 were 20.1% and 19.8% respectively, versus 20.1% and 20.0% for the corresponding periods of 2022. Gross margin(1) in the second quarter for both food and pharma divisions was stable year over year. For the year to date, food margins have declined, mainly due to higher cost of sales, partly offset by higher margins in pharmacy.

Operating expenses as a percentage of sales for the second quarter of Fiscal 2023 were 10.3% versus 10.4% in the corresponding quarter of 2022 mainly due to good cost containment. In the second quarter of last year, gift cards totalling $8 million were paid to all front-line employees. For the first 24 weeks of Fiscal 2023, operating expenses as a percentage of sales were 10.0% versus 10.3% in 2022.

DEPRECIATION AND AMORTIZATION

Total depreciation and amortization expense for the second quarter of Fiscal 2023 was $120.6 million versus $116.3 million for the corresponding quarter of 2022. This increase reflects the additional investments in supply chain and logistics as well as in-store technology. For the first 24 weeks of Fiscal 2023, total depreciation and amortization expense was $240.7 million versus $228.8 million for the corresponding period of 2022.

1. See table in section "Operating Results" and section on "Non-GAAP and Other Financial Measurements"
2. See section on "Forward-looking Information"

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NET FINANCIAL COSTS

Net financial costs for the second quarter of Fiscal 2023 were $28.3 million compared with $27.8 million for the corresponding quarter of 2022. For the first 24 weeks of Fiscal 2023, net financial costs were $55.4 million compared with $56.5 million for the corresponding period of 2022.

INCOME TAXES

The income tax expense of $79.6 million for the second quarter of Fiscal 2023 represented an effective tax rate of 26.7% compared with an income tax expense of $71.8 million and an effective tax rate of 26.6% in the second quarter of Fiscal 2022. The 24-week period income tax expense of $163.3 million for Fiscal 2023 and $147.0 million for Fiscal 2022 represented an effective tax rate of 26.6% same rate as the corresponding period of Fiscal 2022.

NET EARNINGS AND ADJUSTED NET EARNINGS(1)

Net earnings for the second quarter of Fiscal 2023 were $218.8 million compared with $198.1 million for the corresponding quarter of 2022, while fully diluted net earnings per share were $0.93 compared with $0.82 in 2022, up 10.4% and 13.4% respectively. Excluding the specific item shown in the table below, adjusted net earnings(1) for the second quarter of Fiscal 2023 totalled $225.4 million compared with $204.7 million for the corresponding quarter of 2022 and adjusted fully diluted net earnings per share(1) were $0.96 versus $0.84, up 10.1% and 14.3% respectively.

Net earnings for the first 24 weeks of Fiscal 2023 were $449.9 million compared with $405.8 million for the corresponding period of 2022, while fully diluted net earnings per share were $1.90 compared with $1.67 in 2022, up 10.9% and 13.8%, respectively. Excluding the specific item shown in the table below, adjusted net earnings(1) for the first 24 weeks of Fiscal 2023 totalled $463.0 million compared with $418.9 million for the corresponding period of 2022, and adjusted fully diluted net earnings per share(1) amounted to $1.96 versus $1.72, up 10.5% and 14.0%, respectively.

Net earnings and fully diluted net earnings per share (EPS) adjustments(1)

		12 weeks / Fiscal Year
	2023	2022		Change (%)
	Net earnings	Fully diluted		Net earnings	Fully diluted		Net	Fully
	(Millions of	EPS		(Millions of	EPS		diluted
	dollars)	(Dollars)		dollars)	(Dollars)		earnings	EPS
Per financial statements	218.8	0.93	198.1	0.82	10.4	13.4
Amortization of intangible assets acquired in
connection with the Jean Coutu Group	6.6		6.6
acquisition, net of taxes of $2.3
Adjusted measures(1)	225.4	0.96	204.7	0.84	10.1	14.3
		24 weeks / Fiscal Year
	2023	2022		Change (%)
	Net earnings	Fully diluted		Net earnings	Fully diluted		Net	Fully
	(Millions of	EPS		(Millions of	EPS		diluted
	dollars)	(Dollars)		dollars)	(Dollars)		earnings	EPS
Per financial statements	449.9	1.90		405.8	1.67		10.9	13.8
Amortization of intangible assets acquired in
connection with the Jean Coutu Group	13.1		13.1
acquisition, net of taxes of $4.7
Adjusted measures(1)	463.0	1.96	418.9	1.72	10.5	14.0

1. See table in section "Operating Results" and section on "Non-GAAP and Other Financial Measurements"
2. See section on "Forward-looking Information"

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QUARTERLY HIGHLIGHTS

(Millions of dollars, unless otherwise indicated)	2023	2022	2021	Change (%)
Sales
Q2(3)	4,554.5	4,274.2	-	6.6
Q1(3)	4,670.9	4,316.6	-	8.2
Q4(3)	-	4,432.6	4,092.0	8.3
Q3(4)	-	5,865.5	5,719.8	2.5
Net earnings
Q2(3)	218.8	198.1	-	10.4
Q1(3)	231.1	207.7	-	11.3
Q4(3)	-	168.7	194.0	(13.0)
Q3(4)	-	275.0	252.4	9.0
Adjusted net earnings(1)
Q2(3)	225.4	204.7	-	10.1
Q1(3)	237.6	214.2	-	10.9
Q4(3)	-	219.4	200.6	9.4
Q3(4)	-	283.8	261.2	8.7
Fully diluted net earnings per share (Dollars)
Q2(3)	0.93	0.82	-	13.4
Q1(3)	0.97	0.85	-	14.1
Q4(3)	-	0.70	0.79	(11.4)
Q3(4)	-	1.14	1.03	10.7
Adjusted fully diluted net earnings per share(1) (Dollars)
Q2(3)	0.96	0.84	-	14.3
Q1(3)	1.00	0.88	-	13.6
Q4(3)	-	0.92	0.81	13.6
Q3(4)	-	1.18	1.06	11.3

1. 12 weeks
2. 16 weeks

Sales in the second quarter of Fiscal 2023 remained strong, reaching $4,554.5 million, up 6.6% compared to elevated sales last year due to COVID-related restrictions in both provinces. Food same-store sales were up 5.8% versus the same quarter last year mainly due to higher inflation this quarter (0.8% in the second quarter of 2022). Online food sales(1) were up 41.0% versus last year (6.0% in the second quarter of 2022), mostly driven by new partnership sales. Our food basket inflation was 9.0%, down slightly from the previous quarter. Pharmacy same-store sales were up 7.3% (9.4% in the second quarter of 2022), with a 5.0% increase in prescription drugs(1) and a 12.2% increase in front-store sales(1), primarily driven by over-the-counter products, cosmetics and health and beauty.

Sales in the first quarter of Fiscal 2023 remained strong, reaching $4,670.9 million, up 8.2% from the first quarter of 2022 mainly due to higher inflation this quarter. Food same-store sales were up 7.5% versus the same quarter last year (down 1.4% in the first quarter of 2022). Online food sales(1) were up 40.0% versus last year (flat in 2022). Our food basket inflation was 10.0%, the same level as the previous quarter. Pharmacy same-store sales were up 7.7% (7.7% in the first quarter of 2022), with a 6.5% increase in prescription drugs(1) and a 10.2% increase in front-store sales(1), primarily driven by over-the-counter products, cosmetics and health and beauty.

1. See table in section "Operating Results" and section on "Non-GAAP and Other Financial Measurements"
2. See section on "Forward-looking Information"

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