Aug. 27 (Bloomberg) -- X5 Retail Group NV, Russia’s largest food-store operator, said second-quarter profit increased 87 percent as the ruble’s gain against the dollar led to a revaluation of dollar-denominated debt.

Net income rose to $130.4 million from $69.6 million a year earlier, Moscow-based X5 said today in a statement. The ruble advanced 8.3 percent against the U.S. currency in the quarter, resulting in an $86 million gain on exchange rate swings.

Sales fell 8 percent to $2.1 billion because of a drop in the value of the ruble compared with year-earlier levels, the company said. Revenue expressed in rubles rose 26 percent as the retailer added 20 new stores in the quarter.

“One of our current priorities is private label development, which includes realignment of X5’s private label strategy across formats with a focus on building own brands and creating wider choice to drive sales and support margins,” Chief Executive Officer Lev Khasis said in the statement.

Today’s figures were presented on a so-called pro-forma basis, which assumes that the Carousel chain of superstores acquired last June was part of the company in 2008.

Earnings before interest, taxes, depreciation and amortization fell 13 percent to $184.3 million. Profitability on that basis narrowed by 0.5 percentage points to 8.7 percent of sales, the retailer said.

Price Cuts

“Profitability fell because they have cut prices and the share of discount stores in overall revenue climbed,” said Mikhail Terentiev, an analyst at Nomura Holdings Inc. in Moscow who has a “buy” recommendation on the shares.

X5, which owns 1,164 outlets across Russia and Ukraine, focused on budget prices in the quarter to meet consumer preferences. Same-store sales at the Pyaterochka discount chain climbed 18 percent, beating growth at superstores and supermarkets, the company said July 10.

“They plan to focus on efficiency, including improving logistics and infrastructure and now is the right time because costs are falling and it’s less expensive to expand, build warehouses and install information technology platforms,” Terentiev said.

Selling, general and administrative expenses fell to 19.6 percent of sales from 21.1 percent a year earlier. The retailer has cut its workforce, allowing it to reduce staff costs by 22 percent, according to Terentiev.

X5 today reiterated its forecasts for sales growth and capital spending this year. Capital expenditure will total “not more” than 14 billion rubles ($443 million), the retailer said March 6. Sales will rise more than 25 percent in ruble terms on the pro-forma basis, according to X5’s projection.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net.

Last Updated: August 27, 2009 04:46 EDT