Metro Profit Falls 61% as Joblessness Erodes Spending (Update1)

Nov. 3 (Bloomberg) -- Metro AG, Germany’s largest retailer, said third-quarter profit declined 61 percent as rising joblessness eroded consumer spending across Europe, and forecast no improvement for the rest of the year.

Net income fell to 72 million euros ($107 million), or 22 cents a share, in the three months ended Sept. 30, from 183 million euros, or 39 cents, a year earlier, Dusseldorf-based Metro said today. That missed the 89 million-euro average estimate of seven analysts compiled by Bloomberg. Revenue fell 4.6 percent to 15.6 billion euros.

Retail sales in Germany, the source of about 40 percent of Metro’s revenue, fell for a second month in September after companies shortened working hours, leaving consumers with less to spend. Metro earnings were also burdened by the decline of currencies like the Russian ruble and the Polish zloty.

“Metro’s German wholesale business is, and will in the near future, remain a child of sorrow,” said Thomas Rosenke, an analyst at WestLB in Frankfurt. The business environment in eastern Europe will also remain difficult, the analyst said.

Metro, which hasn’t given an outlook for this year because of the economic crisis, said the business trend will not improve “significantly” in the current quarter. Metro maintained its “medium term” forecasts for growth of more than 8 percent in operating profit and of at least 6 percent in revenue.

The German retail association HDE forecasts industry sales will decline 2 percent in nominal terms this year. Forty percent of the retailers surveyed by HDE see the bottom of the economic crisis in the next year, while 6 percent expect it this year.

Results by Unit

Metro fell 26 cents, or 0.7 percent, to 37.50 euros in Frankfurt trading yesterday, reducing the stock’s gain this year to 31 percent. The stock dropped 50 percent last year.

Ebit fell 2.1 percent to 114 million euros at Metro’s Media Markt/Saturn electronics stores. The loss on that basis narrowed at the Real hypermarket chain. Operating profit for the Cash & Carry wholesale unit, the company’s biggest in terms of sales, slid to 171 million euros from 194 million euros.

Operating profit at the Kaufhof department store unit, which Metro put up for sale last year, was 2 million euros, down from 7 million euros a year earlier. Metro had said it’s interested in buying about 60 Karstadt department stores from insolvent domestic competitor Arcandor AG to combine the business with Kaufhof.

By region, sales fell 1.8 percent in Germany and declined 6.3 percent elsewhere. Sales in eastern Europe fell over 15 percent in euro terms, though revenue rose 0.7 percent measured in local currencies.

Cost Cuts

Third-quarter earnings were hurt by 34 million euros in costs related to the Shape 2012 cost-reduction program. The company also said that the program unexpectedly led to its first cost savings during the quarter.

The retailer has said it will cut as many as 17,000 jobs as a result of the program, which is aimed at increasing profit by 1.5 billion euros over four years. The reductions account for about 5 percent of the workforce. Metro said it will spend 650 million euros for the program, mainly in this year and next.

Metro last month opened its first Real hypermarket in Ukraine and a first Cash & Carry wholesale outlet in Kazakhstan. The retailer will open a wholesale store in Cairo next year after the foundation stone was laid in October, boosting the number of countries where the company has operations to 31.

To contact the reporter on this story: Holger Elfes in Dusseldorf at helfes@bloomberg.net.

To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net.