German wholesale retailer Metro nearly doubled its quarterly earnings per share in the final quarter of 2017, as the group leaves behind restructuring costs linked to the carve-out of its consumer electronics unit Ceconomy.
Yet increasing challenges in Russia, a market that accounts for 11 per cent of Metro’s wholesale revenue and a fifth of the division’s profit, will make it harder to meet this year’s sales and earning targets.
Metro suffered a 9 per cent drop in sales and earnings before interest, tax, depreciation and amortisation in Russia in the first quarter, as the country’s economic crisis took its toll. “Russia is the shadow side of our positive development,” Metro chief executive Olaf Koch told journalists on a call. He added that falling disposable income in the country triggered a price war among retailers that hit independent shops — Metro’s core wholesale customer — particularly hard.
Metro is trying to fight the downturn by co-operating more closely with independent retailers in Russia.
“We are confident that we can offset the setbacks in Russia in other markets,” Mr Koch added. He confirmed guidance for the current financial year, promising to increase overall annual sales by at least 1.1 per cent and to lift ebitda excluding contributions from real estate transactions by a tenth.
Analysts were sceptical that Mr Koch could turn round the Russian business. “If the competitive pressures persist, it remains questionable if [Metro’s Russia] strategy can drive sustainable top-line improvement,” Berenberg analyst Dusan Milosavljevic wrote in a note to clients.
Metro, which has suffered from lacklustre sales growth and thin profit margins, last year spun out its consumer electronics retailer Media-Saturn into a separate company, Ceconomy, and now focuses on wholesale and retail food.
In the final quarter of last year, which marks the start of its fiscal year, the Düsseldorf-based group reported EPS of €0.64, up from €0.34 a year earlier and higher than the €0.55 expected by analysts. The key driver of the rise in EPS was lower tax expenses, which at €156m were more than a third less than a year ago. “[The] previous year’s tax rate was adversely affected by demerger and restructuring costs,” Metro said in a statement.
Sales in the quarter rose 0.2 per cent to €10.1bn, while ebtida excluding contributions from real estate transactions increased 7.6 per cent to €608m.
Metro reported strong growth in online grocery shopping. Internet sales at its German supermarket brand Real in the first quarter were 45 per cent higher than a year ago and now account for 2 per cent of overall sales. “All of our expectations regarding online grocery sales were exceeded,” Mr Koch said.
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