The news yesterday evening that Metro AG has found a buyer for its hypermarket business is likely to be welcomed both by the group's shareholders and by top management, who can now focus on steadying the wholesaler's ship.
This morning, the group posted its second-quarter results, saying that like-for-like sales were up 1.2% in second quarter of its financial year, despite the Easter shift, with positive performances in Eastern Europe (excluding Russia), which was up 6.8% on a like-for-like basis, and Asia, which was up 3.6%.
Reported sales across the group were up 0.2% in the quarter, to €6.75 billion.
The group posted a loss of €459 million in the period, however this was impacted by the impairment charge relating to the sale of its hypermarket business to Redos, of €385 million.
'Slower Than Expected'
However, other parts of its business continue to drag on its operations, and will likely be a core focus of the group with the Real sale now confirmed.
In Russia, for example, Metro said that the turnaround measures implemented by the group, such as investments in its price offering, 'continue to take effect, although slower than expected'. Like-for-like sales in the Russia business were down 4.0% in the quarter, the group said.
In addition, the negative development of the Russian currency had a negative effect on earnings, it added.
Like-for-like sales in Germany also saw a decline, of 3.1%, however Metro largely attributed this to the Easter calendar shift, saying that if adjusted for Easter, sales would have remained flat (-0.1%).
In Western Europe, like-for-like sales were down 0.3%, again due to the Easter effect (adjusted for Easter, sales were up 1.1%).
Delivery sales at the business now account for 20% of Metro's sales, the group said, increasing by 9% in the quarter to €1.4 billion.
In addition, Metro said that the digitalisation of its core business is 'progressing', with digital ordering now available for professional customers in 17 markets, with 125,000 orders received per week, on average.
Discontinued Operations
On the hypermarket business, which Metro now lists as a discontinued operation, like-for-like sales were down 5.1% in the quarter, mainly due to the Easter shift, while reported sales were down 6.2%, impacted by three store closures.
Real's online business, real.de, was one bright spot for the hypermarket operation, seeing gross merchandise value rise by 53% to €130 million.
Real boasts annual sales of around €7 billion, but the group has made clear its intentions to sell the business since last summer, in order to focus on its core wholesale operations.
It is understood that buyer Redos intends to make 'intensive' investment in the Real estate, with around €500 million set to be invested in the struggling chain. It also plans to sell an as-yet undetermined number of stores.
“Even with the Easter shift, Metro increased like- for-like sales in Q2 of the financial year 2018/19”, said Olaf Koch, Chairman of the Management Board of Metro AG. “Once again it has been shown that our increased focus on the target groups HoReCa and Trader is proving to be a growth driver for Metro. In addition, we have set the course for the sale of our hypermarket business and agreed exclusivity with Redos.”
Analyst Viewpoint
Commenting on the sale of the Real business, Bruno Montenye, an analyst with Bernstein Research said, "We previously estimated potential store closure costs (for those stores that cant' be sold as a retail operations and are economically unviable) between €180 million to €220 million. Metro would have to take its fair share of those costs as well.
"These costs could quickly run up a large bill, so this is a valid concern for investors. Whilst the management is negotiating a cap, there is no indication of where the cap would be. That matters, as the expected €500 million cash receipt from selling Real could quickly be eroded over the next three years (after three years, Metro has a put option to sell the remaining 24.9% stake in the operating business)."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
