Magnit Margin Decline Sends Russian Retailer’s Shares Sliding

OAO Magnit, one of the world’s most-profitable retailers, reported the first quarterly margin decline in a year as the Russian grocer used price cuts to gain shoppers in new regions including Moscow.

Magnit made “active price investments” in regions that also included St. Petersburg, the Urals and western Siberia, Sergey Galitskiy, the company’s billionaire chief executive officer, said in a statement today.

Earnings before interest, taxes, depreciation and amortization narrowed to 9.1 percent of sales in the first quarter from 9.3 percent a year earlier. The quarter is usually the least profitable of the year. Magnit maintained its guidance for a full-year margin of 10.5 percent, ranking it ahead of international peers such as Wal-Mart Stores Inc. and Carrefour SA, which had Ebitda margins of 7.5 percent and 6.9 percent, respectively, in their most recent financial years.

“The market is not used to seeing Magnit’s profitability moving down and so it’s easy to look at today’s numbers and be cautious,” David Ferguson, an analyst at Renaissance Capital, said in a note. “However, in reality we would not overplay today’s results and think perspective is needed.”

Magnit fell as much as 2.2 percent in London trading, where the company has its main listing. The depositary receipts were down 1.6 percent at $51.20 as of 10:02 a.m.

Magnit has become one of the world’s most profitable retailers for a combination of reasons. The retailer provides its own logistics, running 5,600 of its own trucks and 23 distribution centers, and as Russia’s largest retailer is able to press suppliers on purchasing terms.

The profit margin widened to a record in the fourth quarter as Magnit curbed costs amid slowing sales growth.

First-quarter sales rose 25 percent to the equivalent of $4.7 billion, the company said today.

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

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Paul Jarvis, Robert Valpuesta

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