X5 Retail Confident of Turnaround After Sales Miss Estimates

X5 Retail Group (FIVE) said it’s confident of a turnaround after third-quarter revenue fell short of analyst estimates, widening the sales gap between the Russian grocery chain and billionaire Sergey Galitskiy’s OAO Magnit. (MGNT)

“We are confident in a possibility for a turnaround,” Chief Executive Officer Stephan Ducharme said at an investor presentation today. The retailer plans to refurbish its Pyaterochka discounters to attract customers and develop fresh categories in Perekrestok supermarkets, he said.

Third-quarter revenue rose 6.6 percent to 124 billion rubles ($3.9 billion), missing VTB Capital’s estimate for 7.5 percent growth. Excluding new openings, sales declined 1.7 percent in the third quarter, propelled by a 6.2 percent fall in customer numbers, the Moscow-based company said today.

The company’s trading update “brought yet another disappointment,” Mikhail Terentiev, an analyst at Otkritie Capital, said in a note to clients today. The company posted the lowest sales growth in six quarters, he wrote.

Billionaire Mikhail Fridman’s X5 has lost half its market value since mid-2011 as customer numbers dwindled following the $1.6 billion acquisition of the Kopeyka discount chain. The company’s revenue rose 8 percent last year, trailing the 34 percent sales growth at Magnit. X5 formed a new management team led by ex-board member Ducharme earlier this year to address its underperformance.

‘Admitting Problems’

“Today’s presentation was the first time in several years when I’ve heard X5 management admitting the company’s problems and coming up with a concrete plan to solve them,” Ivan Kushch, an analyst at VTB Capital, said by phone. “Still, it may take 12 to 18 months to implement a transformation.”

X5 fell as much as 5 percent, the most on an intraday basis since July 5. The stock was down 3 percent at $17.02 at 10:43 a.m. in London, where the company has its main listing.

Magnit overtook X5 as Russia’s largest retailer earlier this year. The Krasnodar, south Russia-based company plans to expand in Moscow and St. Petersburg, traditionally X5 strongholds. Magnit has a market value exceeding $30 billion, while X5 is worth $4.6 billion.

X5 has twice delayed today’s investor day as it grapples with its strategy.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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