Metro seen cutting profit goal, CEO news eyed

LONDON/FRANKFURT Fri Oct 28, 2011 8:56am EDT

LONDON/FRANKFURT (Reuters) - Metro AG (MEOG.DE) could become the latest European retailer to warn on profits next week, piling pressure on the German group to sort out a successor to Chief Executive Eckhard Cordes.

Europe's shoppers are curbing spending as their disposable incomes are squeezed by rising prices, subdued wage growth and government austerity measures.

Data on Thursday showed consumer confidence falling across the 27-nation European Union.

That has triggered a procession of profit alerts from top retailers in recent weeks, with France's Carrefour (CARR.PA) issuing its fourth downgrade in as many months and Britain's Tesco (TSCO.L) warning second-half earnings in its home market would be flat.

Metro, the world's fourth-biggest retailer behind Tesco, Carrefour and U.S. leader Wal-Mart (WMT.N), has so far stuck to its goal to grow 2011 earnings by about 10 percent, though there have been signs that could change.

Cordes said earlier this month only that the group was on track to beat last year's profit of 2.4 billion euros ($3.4 billion).

"There is a substantial chance that guidance will be cut back," Citi analysts said, though they questioned whether this would have much impact on Metro's shares, as analysts' have already trimmed forecasts and the stock has fallen heavily.

Analysts expect Metro, which runs cash and carries, hypermarkets, electrical goods and department stores, to make earnings before interest, tax (EBIT) and one-off items of 2.5 billion euros this year, according to Thomson Reuters I/B/E/S Estimates, or up about 4 percent on 2010.

The group's shares have slumped 36 percent this year, underperforming the STOXX Europe 600 retail index .SXRP by 32 percent, due in part to a big drop in sales at its MediaMarkt Saturn (MMS) electricals business as shoppers cut back on discretionary spending.

MANAGEMENT UNCERTAINTY

Analysts believe the share price fall is one of the reasons why Cordes said earlier this month he would not seek to extend his contract, which runs until October 2012.

Cordes, who has also clashed with unions over cost cutting, said "the trustful basis" to stay on no longer existed.

Soon afterwards Metro said the head of its supervisory board Juergen Kluge was also stepping down.

Analysts want the uncertainty cleared up.

"We believe Metro will trade on a valuation discount to peers as long as the uncertainty surrounding the CEO position persists," those at MainFirst Bank said.

One source close to Metro has told Reuters that Cordes might leave over the winter, with finance chief Olaf Koch possibly taking over on an interim basis.

Q3 RESULTS

For the third quarter, analysts expect Metro to report a 33 percent jump in underlying earnings before interest and tax (EBIT) to 593 million euros, according to a Reuters poll, boosted by around 100-120 million of proceeds from property sales.

Excluding those proceeds, earnings would be up about 9 percent, compared with a 4 percent drop in the first half.

Analysts expect MMS to return to profit growth after a plunge in first-half earnings, helped in part by the exit from its loss-making French business.

Group earnings should also benefit from Metro's "Shape 2012" plan to cut costs and boost productivity.

However, analysts expect sales to remain little changed at around 16 billion euros, and sales from stores open over a year to have fallen at all four of its retail formats.

They will be keen to hear any news about the recent launch of Saturn's online business in Germany, as MMS battles to catch up with rivals in e-commerce, as well as an update on trading in eastern Europe, following warnings from some Russian grocers that conditions have deteriorated.

While braced for a change in guidance, some analysts think Metro could stick to its forecast ahead of the key fourth quarter, which accounts for about 60 percent of annual profit.

Also on Thursday, Britain's Wm Morrison Supermarkets (MRW.L) is expected to show it has continued to outperform larger rivals, helped by its focus on fresh foods and lower exposure to discretionary non-food goods.

Citi analysts predict Britain's fourth-biggest grocer will report a 2.5 percent increase in third-quarter sales from stores open over a year, excluding fuel and VAT sales tax.

On Wednesday, Britain's Next (NXT.L) may underscore the difficult trading conditions experienced by clothing retailers during a warm September and October, though analysts think it should benefit from strength in its home shopping business. ($1 = 0.707 Euros)

(Additional reporting by James Davey; Editing by Helen Massy-Beresford)