Metro Profit Misses Estimates on Slow Holiday Spending, Currency

Metro AG (MEO), Germany’s largest retailer, reported fiscal first-quarter profit that missed analysts’ estimates amid weak Christmas sales and a stronger euro that sapped the benefits of foreign expansion.

Earnings before interest, taxes and special items dropped 16 percent from a year earlier to 1.07 billion euros ($1.46 billion) for the quarter ended Dec. 31, the Dusseldorf-based company said in a statement today. That missed the average 1.08 billion-euro estimate of analysts surveyed by Bloomberg.

Metro, owner of Media Markt electronics shops and Galeria Kaufhof department stores, is expanding eastward in Russia, Eastern Europe and China, and increasing e-commerce sales to counteract weak consumer spending in Europe and the effects of a stronger euro, which has the effect of reducing overseas sales converted into Metro’s home currency.

“Foreign exchange rates have moved against Metro significantly in recent weeks, particularly in its most profitable market, Russia,” James Collins, an analyst at Deutsche Bank AG in London, said in a Feb. 3 research note. The company is showing “little evidence of any fundamental turnaround,” said Collins, who recommends holding the shares.

The retailer in its statement said it expects “economic momentum will remain below average” this year and that it plans to strictly manage costs.

Metro said on Jan. 20 that it plans to go ahead with a partial initial public offering of its Russian Cash & Carry business, which supplies other businesses with goods.

The profit report follows preliminary sales figures released on Jan. 13 that showed first-quarter revenue fell 3.3 percent to 18.7 billion euros. In December, the company said it expects a “slight rise” in sales this year when earnings will be “markedly up.”

Analysts surveyed by Bloomberg estimate Ebit before special items this year at 1.79 billion euros. The company last year made a change to its fiscal year, so it will end on Sept. 30 this year.

Plans to list about a quarter of the Russian cash and carry business are “the biggest story for the company” right now, Ragha Gupta-Chaudhary, an analyst at Nomura Securities in London, said in a Feb. 5 research note. That portion of the business could be worth 7 billion euros, said Gupta-Chaudhary, who recommends buying the shares.

Metro’s share fell 0.8 percent at 31.65 euros in Frankfurt yesterday, paring the gain to 29 percent in 12 months.

Metro plans to hold a conference call for analysts at 9 a.m. in London today.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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