Magnit, the Russian retailer that has dropped 9 per cent from this year’s high in April, will probably report lower profit margins when it posts second-quarter results, as a slump in sales amid shrinking wages and real disposable incomes curbed growth, according to Barclays Plc and ZAO Raiffeisenbank.
While Magnit has expanded its selling space at a record level, revenue has declined in each month this year except May as Russians earn less money and price inflation slows. That could lead to a 110-basis-point drop in second-quarter gross margin from a year earlier, according to Boris Vilidnitsky, an analyst at Barclays in London.
“Even as Magnit is accelerating its selling-space growth, sales are shrinking, as cash-strapped consumers have little money to spend,” Vilidnitsky said.
Sales for 2015 may fall short of Magnit’s estimate of as much as 32-per-cent growth, Vilidnitsky said. The company, Russia’s largest retailer, said earlier in July that second-quarter sales increased 27 per cent from the same time a year ago.
Magnit, once seen as a company best equipped to withstand Russia’s economic turmoil, had rallied as much as 33 per cent this year, after a record 31-per-cent slump in 2014. It has since reduced the gain to 20 per cent. Russian wages adjusted for inflation shrank 7.2 per cent in June and real disposable incomes slipped 3.5 per cent, according to government data released last week. After peaking at a 13-year high of 16.9 per cent in March, annual inflation slowed to 15.3 per cent in June.
The Krasnodar-based retailer, whose lower prices and large scale have helped lure bargain-seeking consumers, will open 1,200 convenience stores and 800 cosmetics shops this year, the company said earlier this year. David Ferguson, an analyst at Renaissance Capital Ltd, forecasts that Magnit’s EBITDA margin will increase to 10.6 per cent in the first half of this year from 10.5 per cent in the same time a year ago.
“The opening of new stores is what drives growth in the retail sector, and they’ve done well in that area,” Ferguson said. “Consumers are obviously under pressure, money is tight, and the retailer got the pricing balance right so that it could attract the ultimate number of customers without sacrificing too much profit.”
– News by Bloomberg, edited by ESM
