Metro Clouds European Retail Horizon – US-FOREX.US
Germany’s Metro dashed hopes for a speedy recovery among European retailers, on Monday. The country’s largest retailer said it saw signs of further decline in its business in the second half of the year, despite having posted better-than-expected earnings for the second quarter.Shares of Metro
fell 1%, or 40 euro cents , to 40.23 euros in morning trading in Frankfurt, as investors were spooked by the retailer’s cautious outlook.”Clear signs for a fast economic upswing after the severe downfall are so far not discernible… We expect that retail sales will further decline in the coming months,” Metro said. “We assume that the sales and earnings development trends will not change significantly in the second half of 2009.”The second half of the year, particularly the fourth quarter when it generates around 60% of its earnings, is key to the company’s profitability. Metro usually cashes in on an increase in sales in its electronics division during the Christmas period, but with consumer confidence under pressure and with unemployment set to continue rising the retailer might not benefit as much from trading this year.”The future of Metro depends on your view on consumer confidence for the rest of the year,” said Cedric Lecasble, an analyst with Kepler Capital Markets in Paris. “We tend to be cautious about the consumer environment and expect consumer spending to be hurt by a rise in unemployment in Germany and Easter Europe.”Eastern Europe accounted for 46% of Metro’s earnings last year, whereas Germany represented 40% of sales for the company. Discretionary spending will be particularly affected as the levels of jobless people increase in the second half of the year, said Lecasble.
Metro posted a 6.1% drop in adjusted earnings before interest and tax, or ebit, to 307 million euros , beating the average estimate of 297 million euros in a Reuters poll of analysts. Sales fell 3.8% to 15.3 billion euros , below estimates.
The results came as Germany’s Federal Statistics Office revealed an unexpected 1.8% slump in retail sales for June – another sign that Europe’s largest economy remains under pressure.
Despite Metro’s short-term woes, analysts are less glum about its future prospects. JPMorgan
told investors last month that Metro “remains one of the most interesting restructuring stories” in the food retail sector in Europe thanks to an increase in stock valuation after synergies. The investment bank said Metro could nearly double its earnings over the next four to five years.
Thomson Reuters contributed to this article.