Metro posts loss on electronics price cuts

2012-05-04 15:25:34
Summary:Metro AG, Germany's biggest retailer, reported a wider-than-expected first-quarter loss after cutting prices of electronics goods to win back shoppers.

Metro AG, Germany's biggest retailer, reported a wider-than-expected first-quarter loss after cutting prices of electronics goods to win back shoppers.

The net loss was 82 million euros ($108 million) compared with a 3-million-euro loss a year earlier, the Dusseldorf-based company said on Thursday in a statement. Analysts predicted a deficit of 55.6 million euros. Metro reiterated that earnings this year are likely to equal those of last year, while sales will increase.

Earnings were hurt by "extensive price investments" at the Media-Saturn electronics unit, plus higher expansion costs, Metro said.

Chief Executive Officer Olaf Koch is seeking to address declining sales at Media-Saturn, which started selling electrical goods online last year, a decade after US competitor Amazon.com Inc entered the market.

"We are moving in the right direction, but it's still very early days and we have a lot of work to do," Koch said on Thursday.

Metro posted a loss before interest and tax of 9 million euros compared with earnings of 142 million euros last year, missing the average estimate for a 55.6-million-euro profit.

'Better prices'

"During the past few months we have invested massively into better prices and additional customer services," Koch said in the statement.

The CEO expects headcount to fall at Metro's Dusseldorf headquarters as the retailer seeks to save about 100 million euros a year, he said. Koch didn't give an estimate of how many jobs may be cut.

First-quarter revenue rose 2.2 percent to 15.6 billion euros, matching analysts' estimates, led by growth in the emerging regions of eastern Europe, Asia and Africa.

Sales in the first four months of the year rose 1 percent from a year earlier, Metro said on Thursday. "In the second quarter we will make progress regarding sales performance," Koch said.

Sales in Germany, where Metro gets almost 40 percent of revenue, rose 1.6 percent, helped by online sales at Media-Saturn and an increase in customer visits to the Cash & Carry chain.

German retail sales rebounded in March as declining unemployment, slowing inflation and higher wages bolstered households' purchasing power, according to a report on Monday.

Shrewd strategy

In Western Europe excluding Germany, revenue fell 1.2 percent. Economic confidence in the eurozone declined more than economists forecast in April as the region's slump showed signs of deepening, a report showed on April 26.

Sales at Cash & Carry, Metro's biggest unit, rose 3.7 percent to 7.3 billion euros, the retailer said.

Metro said in March that it will focus on Cash & Carry and Media-Saturn and cut investment in Kaufhof department stores and Real supermarkets. Koch said he doesn't see any immediate disposals of the units, which he qualified as "non-core".

"The strategy adopted by the new CEO to focus on top-line growth is certainly a shrewd one, but could take a toll on the margin in the short term," said Pierre-Edouard Boudot, a Paris-based analyst at Natixis.

"We believe the company will be penalized by a significantly non-food product/format mix and a rather unfavorable country mix," Boudot said.

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