Magnit Shares Advance as Grocer Reports Record Profitability

OAO Magnit, Russia’s largest retailer, rose the most in three weeks in London trading as it posted record quarterly profitability after negotiating better terms with suppliers.

Magnit advanced as much as 2.7 percent, the biggest intraday gain since Oct. 8, and was up 1.8 percent at $63.35 per global depositary receipt at 3:05 p.m. in London. The grocer’s Russian shares gained 2.4 percent to 8,520 rubles at the close of trading.

Earnings before interest, taxes, depreciation and amortization as a percentage of sales rose to 11.6 percent versus 10.9 percent a year earlier, the Krasnodar, Russia-based store chain said in a statement today. Sales increased 29 percent in ruble terms to 144 billion rubles ($4.5 billion).

Magnit’s Ebitda margin reached “new all-time highs due to the ongoing improvements in supplier terms and Magnit’s focus on profitability over traffic in the third quarter,” said Mikhail Terentiev, an analyst at Otkritie Capital. The previous record margin was 11.3 percent in the fourth quarter of 2012.

The highest possible sales growth rate for the full year is 28 percent to 29 percent, Chief Executive Officer Sergey Galitskiy said in the statement. That’s below previous guidance for 29 percent to 30 percent sales growth, due to lower food-price inflation, according to Otkritie Capital.

‘Phenomenal’ Surge

Magnit started cutting prices in October to attract more customers, Chief Financial Officer Khachatur Pombukhchan said today on a conference call. Traffic fell 1.44 percent in the third quarter as the company focused on profit margins. Magnit is seeking to sustain an Ebitda margin of at least 11 percent this quarter, Pombukhchan said.

“The surge in Magnit’s profitability is phenomenal given the economic slowdown in Russia along with cost inflation and increasing competition among retailers,” Natalia Kolupaeva, an analyst at ZAO Raiffeisenbank, said by phone. “This reflects great execution, while the company also uses temporary weakness of its largest competitor,” X5 Retail Group NV.

X5 changed its management team this year to fight declining customer numbers. The Moscow-based grocer’s third-quarter sales rose 6.6 percent, missing analyst estimates, while customer traffic and same-store sales declined. X5 has a market value of $4.4 billion versus Magnit’s $30 billion.

Magnit operated 6,783 convenience stores as of the end of September, as well as 148 hypermarkets, 30 “Magnit Family” outlets and 685 cosmetics stores.

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