Metro Exceeds Estimates as Quarterly Loss Held in Check

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Metro AG reported a narrower second-quarter loss than analysts estimated, spurring optimism over a turnaround at the German retailer’s electronics stores.

The loss before interest, taxes and special items was unchanged from a year earlier at 40 million euros ($45 million), Metro said Tuesday, sending the shares up as much as 3.2 percent. Analysts estimated 54.8 million euros.

Chief Executive Officer Olaf Koch is expanding sales at Cash & Carry wholesale stores and Media-Saturn electronics outlets, and repositioning Real food stores for profit growth. Metro may also be once again seeking a buyer for its Galeria Kaufhof department stores, according to a report last week.

“It’s a strong performance, and better than consensus on all measures,” said Bruno Monteyne, an analyst at Sanford C. Bernstein. “Most sales outperformance is due to Media-Saturn. That business is showing a solid turnaround pattern.”

Revenue at Germany’s biggest retailer was little changed at 14.37 billion euros in the second quarter. Like-for-like sales at Media-Saturn advanced 5.2 percent, boosted by marketing and online sales.

Easter Boost

Metro shares have risen 32 percent this year as Koch has taken steps to divest underperforming divisions and modernize its stores. The shopping run-up to Easter in early April this year helped second-quarter sales compared with last year, when the holiday was later.

“Nobody ever gives Metro credit for trying to turn around all three of their businesses at once,” said Richard Clarke, an analyst at Sanford C. Bernstein in London, who has an overweight rating on the shares. “If they can and get that credit, then you’ll see the stock jump.”

At its big-box Real food stores, Metro last month took a 450 million-euro writedown for acquisitions made in the 1990s and said it plans to invest “extensively” in coming years to modernize the business.

Metro has postponed an initial public offering of its Russian Cash & Carry business because of political instability in Ukraine, though Koch said last month business in Russia is stable. The company is benefiting from a more favorable exchange rate with the ruble, raising sales at its Russian stores when they’re converted into euros.

Metro also picked Pieter Boone, who manages Cash & Carry’s Russian business, to succeed Koch as CEO of the entire brand as Koch will focus on his role as head of Metro.

Russian Bears

“Consensus is also very worried about profitability in Russia, which clearly is holding up better than the bears would have it,” Monteyne said.

Metro has been seeking a buyer for Kaufhof for years, and needs to find one that will preserve the stores that sit at the heart of many German cities, said Clarke.

“It’s about five percent of their group sales, but about 75 percent of their news flow. It’s such an iconic store that if they sell it to some foreign buyer who strips it down they could get a lot of bad press.”

The company said it expects full-year Ebit before certain items and adjusted for currency effects to rise slightly from last year’s 1.73 billion euros.

Metro plans to hold meetings for investors and press Wednesday in Berlin.

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