European retail: Metro sees sales decline in Q1
Published:06-May-2009
By Datamonitor staff writer
Metro, Germany's largest retailer, has posted its Q1 results, revealing that for the first time in years contributions from abroad have fallen. While currency exchange rate effects played a role, other factors also contributed, such as Easter falling in Q2. While there were some snippets of good news, the overall outlook for 2009 is bleak, as the downturn becomes more pronounced.
Metro's results, which have been impacted by currency fluctuations, reflect the economic crisis.
In Q1 2009, Metro's total sales declined by 2.5% to reach E15.2 billion. Exchange rate fluctuations impacted this result heavily, especially in Eastern Europe, where local currencies devalued sharply against the euro. Meanwhile, EBITA fell from E487m in Q1 2008 to E409m in Q1 2009.
On the brighter side, Germany, the group's domestic market, saw a marginal sales uplift of 0.6%. This was driven mainly by the outperformance of Media Markt, which continued growing strongly, with sales up 6.4% despite the extremely difficult market, thanks to promotions for its 30th anniversary. As a result, the business is gaining market share, improving on its current 21%, as the competition in Germany is weakened.
However, two business areas are acting as a drag on the overall German performance. Problems persist at Real, Metro's hypermarkets, which are suffering from the might of discounters in the country, as well as at its cash and carry business. Despite initiating a turnaround program at Real last year and introducing new lower-priced private label lines, like-for-likes continue to fall. Another contributing factor is falling food price inflation. Inflation is now significantly below last year and remains marginally positive, causing lower prices across the board and thus making sales growth hard to achieve. Metro has not yet made internal targets for the Real turnaround, but management seems committed to the concept as customer frequency is increasing, with 3.5 million more transactions added in 2008, a trend which continued in Q1.
Metro's other problem child is its cash and carry division, which continues to underperform. The format is suffering from operational inefficiencies in Germany when benchmarked against other European country divisions. Management will now reduce the format's non-food share from 25% to 10%.
The current economic climate is making it much harder to return ailing formats to growth. Metro has to plan ahead to tackle a tough outlook in all of its markets; as the economic downturn creates havoc across the EU, unemployment is set to rise and consumer sentiment will gradually weaken. That said, it is likely that the business will come out of the recession as a winner, as its relatively healthy balance sheet and sheer scale will protect it from the worst effects of the slump.
