May 8, 2014
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Metro keeps profit target as cash-and-carry sales jump

May 8, 2014

DUESSELDORF, Germany- German retailer Metro AG reported a strong rise in April sales in its cash-and-carry business on Thursday, underlying its confidence in its profit target despite a poor performance from its consumer electronics business. Europe's No. 4 retailer, a sprawling group which also includes hypermarkets and department stores, has been trimming its portfolio and cutting costs to respond to sluggish demand in its core markets of Germany and western Europe, while expanding in emerging markets.

Kaufhof | Source: Metro AG

Metro said its sales for the fiscal second quarter, which runs from January to March, fell 7.6 percent to 14.326 billion euros, while it swung to a core loss before special items of 40 million euros, down from a 14 million euro profit. The loss was smaller than an average analyst forecast.

"Profitability held up better than expected, with underlying net profit margin 6 basis points ahead of consensus," said Bernstein analyst Bruno Monteyn.

Metro shares, which trade at 13.4 times forward earnings - a discount to Europe's biggest retailer Carrefour on 15.9 times - were up 3.9 percent at 0828 GMT.

The quarterly results were hurt by the fact Easter fell this year in April rather than March and Metro said like-for-like sales were up 4.7 percent in April, driven by a 4.9 percent rise for cash-and-carry, which accounts for almost half of sales.

However, its Media-Saturn division, Europe's largest consumer electronics chain which accounts for about a third of Metro's turnover, had a poor quarter, with sales sliding 5.8 percent in its home market Germany.

Media-Saturn's CEO quit on Tuesday due to an escalating dispute between Metro, its majority shareholder, and the firm's founder Eric Kellerhals, which has hampered its efforts to fend off tough competition from internet-based retailers.

Metro said other units should compensate for Media-Saturn, meaning the Metro group should still meet its 2013/14 targets, including EBIT before special items of about 1.75 billion euros, although Metro cautioned that negative exchange rates could still bring that figure down.

Metro said it now expected Media-Saturn's 2013/14 earnings before interest and tax (EBIT) before special items to approximately match the prior year's level, compared with a previous forecast of "sharply rising" earnings.

"Although we would have hoped to see more positive news from the Media-Saturn sales, we will look to the World Cup as the next major catalyst, with Metro well positioned to benefit from any fillip," said Bernstein's Monteyne.

Metro shares have fallen 20 percent this year, largely due to the company's decision in March to delay a stock market listing of a stake in its Russian cash-and-carry wholesale operation due to market turmoil over the Ukraine crisis.


Media-Saturn, the world's second-biggest consumer electronics chain after Best Buy with more than 950 stores in 17 countries, has been embroiled for years in a power struggle between Metro and the Kellerhals family, which still owns a stake of close to 22 percent.

The dispute flared in recent weeks as Eric Kellerhals sought candidates to replace Media-Saturn's Chief Executive Horst Norberg, prompting the latter to quit on Tuesday.

Metro immediately installed its management board member Pieter Haas to lead Media-Saturn on an acting basis, but Kellerhals said on Wednesday he had another candidate in mind, suggesting the fight is set to continue. The long-running battle has delayed Media-Saturn's entry into e-commerce. Only days before he resigned, Norberg announced a new strategy to accelerate the online push.

Metro Chief Executive Olaf Koch lauded Haas as an expert in consumer electronics and innovation on Thursday and told a conference call for journalists that Media-Saturn now needed to be able to pursue its new strategy "without disruptions".

Metro said online sales at Media-Saturn - which competes with Dixons Retail and Darty Plc as well as other e-commerce players - rose by over 35 percent in the first half of 2013/14 to account for almost 7 percent of total sales. ($1 = 0.7183 Euros)

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