Metro Keeps Forecast as Cash & Carry Masks Difficulties

Metro AG, Germany’s largest retailer, stuck to a full-year forecast after a third straight quarter of same-store revenue growth at the Cash & Carry wholesale chain offset lower sales at Media Markt and Saturn electrical stores.

Adjusted earnings before interest and taxes will be about 1.75 billion euros ($2.4 billion) in the year to September, the Dusseldorf-based company said today. Profit at the Media-Saturn unit will “approximately match” last year’s levels instead of “sharply rising” as previously forecast, Metro said.

Chief Executive Officer Olaf Koch, 43, is rushing to modernize the retailer, remaking the Web sites of its ailing Media Markt and Saturn stores and preparing to arm employees at Kaufhof department stores with tablet PCs. Metro today reported a narrower-than-estimated second-quarter loss, sending the shares up as much as 6.7 percent, the most since November.

The “steady performance” of Cash & Carry was one of the main highlights of the results, James Grzinic, an analyst at Jefferies International, said in a note. Sales at stores open at least a year rose 0.8 percent at the unit, led by growth in eastern Europe and particularly Russia, the company said.

Demand at Media-Saturn was “soft given the lack of major new product launches,” Grzinic wrote. The division plans to cut 200 jobs at a cost of more than 10 million euros, Metro said.

Competition from Inc. is cutting into Media-Saturn’s sales, according to Raghav Gupta-Chaudhary, an analyst at Nomura Securities in London. Horst Norberg, the head of the unit -- which sell everything from TVs, PCs and coffee makers to large appliances -- left May 6. His replacement, board member Pieter Haas, is seeking to boost online sales.

Quarterly Loss

Metro said it lost 40 million euros ($55.7 million) before interest, taxes and one-time gains or costs in the three months ended in March, compared with the average of 11 analyst estimates compiled by Bloomberg for a loss of 42.8 million euros. Revenue fell 7.6 percent to 14.3 billion euros.

In response, Metro has modernized and built up its consumer electronics e-commerce Web sites globally, and is arming sales associates in its Galeria Kaufhof department stores with tablets to boost sales, Koch told analysts on a conference call.

By the summer, Kaufhof workers will carry 1,100 Hewlett-Packard Co. tablets around the stores’ floors that will be connected with the inventory of, Kaufhof’s online store, a company spokesman said. The devices, running Google Inc.’s Android software, can eventually be connected with the division’s enterprise planning software.

Russian IPO?

Still, the company is struggling to grow. Revenue this year may total 64.1 billion euros, according to analyst estimates, about matching the figure for 2007. Earnings before interest and tax are at about the level of a decade ago, with analysts on average expecting 1.74 billion euros this year.

Metro reiterated today that it plans a stock sale for the Russian unit of Cash & Carry that was postponed amid the conflict with Ukraine.

“It is encouraging that Metro is seeing no deterioration in the Russian domestic market, and can continue to grow there,” Bruno Monteyne, a London-based analyst at Sanford C. Bernstein Ltd., said in a note to clients.

The shares were up 2.6 percent at 28.87 euros as of 1:48 p.m. That pared the decline this year to 18 percent.

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