Metro Says Currency Shifts to Weigh on Full-Year Earnings

Metro AG (MEO), Germany’s largest retailer, said unfavorable currency shifts will weigh on profit and gave no indication it will manage to sell shares in its Russian cash-and-carry business amid turmoil in the region.

The weakness of currencies against the euro will reduce full-year earnings by a “high-double-digit” million euro amount, Dusseldorf-based Metro said in a statement today.

An initial public offering of the Russian unit isn’t guaranteed and the company “will only do it if things move in a different direction,” Chief Executive Officer Olaf Koch said today on a conference call, citing political circumstances. Adidas AG today cut its full-year profit forecast, citing turmoil in Russia and a slump in demand for golf supplies in North America. Metro stock fell as much as 5.5 percent.

The “weakness could be partly because the company confirmed that the Cash & Carry Russia IPO is not on the immediate agenda,” said Fabio Fazzari, an analyst at Equita SIM SpA in Milan. “The Adidas warning on Russia also could increase pressure on stocks exposed” to that market.

Unchanged Earnings

Third-quarter arnings before interest and taxes excluding some items were little changed at 276 million euros ($370 million). That compares with the 275.1 million-euro estimate of analysts surveyed by Bloomberg.

“Metro has once again nudged down its guidance,” Andrew Gwynn, an analyst at Exane BNP Paribas, wrote in a note to investors, estimating the reduction is 2 percent. The retailer’s Media Markt electronics chain is “trading a little worse than feared in Germany.”

Koch is wrestling with an activist shareholder of the company’s electronics-stores unit, sluggish sales at Galeria Kaufhof department stores and the Russian IPO delay.

Easter fell in the period this year, unlike a year ago, helping provide some relief as it spurred spending at the company’s Cash & Carry stores. The Easter business is estimated to contribute 1.5 percentage points to revenue, according to Koch.

The company reiterated its forecast of full-year earnings before interest and taxes excluding special items of about 1.75 billion euros based on constant exchange rates.

‘Paying Off’

“The measures we have introduced and investments we have made in the successful future of our sales lines are increasingly paying off,” Koch said in the statement. The company said its supervisory board extended his contract for three years.

Sales for the period that ended in June declined 2.7 percent to 14.33 billion euros, compared with analysts’ 14.9 billion-euro estimate.

The stock traded 5.3 percent lower at 27.24 euros at 12:02 p.m. in Frankfurt. The shares have lost 22 percent this year as the company said in March it would delay the IPO in the midst of that country’s conflict in Crimea, which has led to U.S. and European Union sanctions against Russia.

In Germany, Koch continues to tussle with investor Erich Kellerhals, who owns nearly 22 percent of Metro’s Media-Saturn chain of electronics stores and has been agitating for the company to improve its performance. Metro has hired Deutsche Bank AG to explore options including a spinoff of the division, people familiar with the matter said this month. Kellerhals founded Media Markt stores and sold them to a predecessor of Metro in the 1980s.

Koch is also trying to improve performance at Kaufhof. A competitor, Karstadt Warenhaus GmbH, on July 7 said its CEO resigned after less than five months. The uncertainty in the German department store business makes any restructuring of Kaufhof unlikely right now, Nomura Securities analyst Raghav Gupta-Chaudhary said in a recent interview.

“It’s still considered to be non-strategic,” he said. Yet “the sale of Kaufhof at this time is not at the forefront of investors’ minds.”

To contact the reporters on this story: Aaron Ricadela in Frankfurt at aricadela@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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