UPDATE 2-Metro to pull plug on Chinese electricals venture

Wed Jan 16, 2013 7:06am EST

* Q4 group sales 19.4 bln euros vs Reuters poll avg 19.6 bln

* Seven stores in China seem likely to be closed

* Metro confirms 2012 profit aim, Xmas trading satisfactory

* Shares rise as much as 3.5 pct, outperform retail sector

By Victoria Bryan

FRANKFURT, Jan 16 (Reuters) - German retailer Metro is to scrap its consumer electronics venture in China, once trumpeted as an engine of future growth, after meeting unexpectedly strong competition.

The decision is the latest setback for an international retailer in the world's most populous country, where groups like Best Buy, Kingfisher and Home Depot have struggled after underestimating local and online rivals.

Metro, which also reported a smaller-than-expected 0.5 percent rise in fourth-quarter sales, said on Wednesday it would make an undisclosed provision for the withdrawal of Media-Saturn, Europe's largest electricals stores chain, from China.

Analysts said that was likely to be about 100 million euros ($134 million), or equivalent to the revenue booked by the seven Chinese Media-Saturn stores in the first nine months of 2012.

"It's only seven stores, so the impact won't be huge but it's still a failure. However, it's better that they close a loss-making operation than stick to something that's not working," said Planet Retail analyst Bianca Casertano.

Shares in Metro rose as much as 3.5 percent, and were up 0.7 percent at 1145 GMT, outperforming a 0.2 percent decline in European retail stocks.

News of the withdrawal was revealed by Reuters last week. The Chinese stores are run in a venture with Taiwan's Foxconn Technology, which was not immediately available for comment on Wednesday.

Metro, which comprises 2,200 stores in 32 countries ranging from cash and carries, hypermarkets and department stores to electricals outlets, had originally hoped to set up over 100 Media-Saturn stores in China, but it now seems more likely the seven it operates in and around Shanghai will be closed.

While welcoming the exit from a loss-making business, Jefferies analysts said it left uncertainty over the longer-term prospects of a company heavily exposed to mature European markets. They cut medium-term earnings estimates by 6-7 percent.

Metro has recently been taking a tougher stance on underperforming divisions. It has sold off its UK and Moroccan cash and carry operations, as well as most of its Real hypermarkets in eastern Europe.

Chief Executive Olaf Koch said the withdrawal of Media-Saturn from China would not affect its cash and carry business there, where it opened 12 stores during the year.

NAIL BITING

Metro reported fourth-quarter sales of 19.4 billion euros, giving a full-year total of 66.7 billion, slightly below analysts' forecasts in a Reuters poll for 19.6 billion and 67.0 billion respectively.

It has been a fiercely competitive holiday season in austerity-hit Europe, with retailers fighting over shoppers' dwindling budgets with discounts and offers.

French retailer Casino said on Tuesday sales fell in its home market in the fourth quarter.

Shoppers have also been leaving it until later to make purchases, ensuring it was to be a nail-biting Christmas for retailers like Metro, which typically makes around 55-60 percent of its profit in the fourth quarter.

Metro said that while the Christmas trading period had got off to a slow start, it was satisfied overall.

It was especially pleased with Media-Saturn in Germany, where lower prices and new websites helped to lure customers and resulted in a 3 percent rise in quarterly like-for-like sales.

Metro confirmed a target for 2012 earnings before interest, tax and special items to reach around 2 billion euros, down from 2.37 billion in 2011. The 2012 figure will include the proceeds of a real estate transaction in France and net debt will be reduced further, the group said.

Metro did not give any more details of the property transaction. It had been aiming for proceeds from real estate transactions of more than 150 million euros in 2012.

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