Finnish retail group Kesko has reported a sales decrease of 5.7%, to €2.4 billion, for the first quarter of 2018, driven by divestments from its Russian building and home improvement operations.
On a like-for-like basis, sales grew by 3.4% in local currencies, as did like-for-like operating profit – up 27%, to €40 million.
The negative sales in absolute terms were due to divestments carried out in the first half of 2017.
The group's net sales decreased by 5.2% in Finland, or grew by 5.0% like for like. In other countries, net sales decreased by 7.8%, or 3.2% LFL. International operations accounted for 17.8% of the group's net sales.
Operating profit was up to €36.6 million, while the company's like-for-like return on capital employed was 13.5%, compared to 12.3% the year before.
Comparable profit before tax was up to €39.9 million, while comparable earnings per share were €0.35, up from €0.31 last year.
Grocery Sales
Grocery sales, which make up more than half of the group’s income, grew by 2.7%, to €1.276 billion, during the period, growing by 7.4% on a LFL basis.
The sector grew despite being negatively affected by the transfer of stores – acquired with Suomen Lähikauppa – to retailers and changes in the store site network.
"The strong sales performance was underpinned by the good progress we have made in the strategic redesign of our chain brands and stores," said Mikko Helander, president and CEO of Kesko. "Half of our store network has already been remodelled.
"Last spring, the work to integrate Suomen Lähikauppa was at its most intensive stage. Now we are successfully approaching the finishing line, and by summer, the stores will have been transferred to retailers," added Helander.
Russian Divestments
In the building and technical trade, net sales decreased by 18.2%, impacted by the H1 2017 divestments. Like-for-like sales decreased by 2.4% in local currencies.
"The timing of Easter, at the end of March and beginning of April, meant sales in the grocery trade increased while sales in the building and technical trade decreased," Helander said.
The decline in the division’s sales and operating profit was affected, in particular, by the divestments in the speciality goods trade, Helander added, saying that the group will continue divesting its Russian building and home improvement trade operations.
"We were particularly happy with the good performance of K-Rauta and Onninen in Finland,” Helander said. "Measures to improve profitability in Sweden continued.
"In Norway, changes to the store site network resulted in a decrease in sales. We are currently updating our strategy, and the choices we make and their successful execution will enable good value-creation potential for upcoming years," he added.
The group announced on 16 February 2018 that it would divest from its building and home improvement trade operations in Russia.
Outlook
Kesko expects net sales for continuing operations for the next 12 months to exceed the level of the previous 12 months.
However, due to divestments and restructuring, net sales for Kesko’s continuing operations for the next 12 months are expected to fall below the level of the previous 12 months, according to the company.
Operating profits for the next 12 months are also expected to exceed the previous year’s level, while investments in store openings and redesigns, the expansion of logistics operations, and digital services will burden profitability during the period.
"We are also investing strongly in our next-generation online food store, which is to be expanded to cover the whole country," Helander said. "We expect to see significant growth in online food sales in upcoming years."
"Thanks to the further improvement of our cash flow, Kesko’s financial position is even stronger, which allows us to develop and grow our business going forward," he said.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Kevin Duggan. Click subscribe to sign up to ESM: European Supermarket Magazine.
