BERLIN (Reuters) - Shares in Germany’s Metro (B4B.DE) jumped the most in more than a year on Thursday after the retailer raised hopes that its shrinking Russian business had turned a corner despite a quarterly drop in profit and sales.
The Duesseldorf-based group has overhauled its management team in Russia and is introducing bulk discounts to attract more independent traders and restaurant owners to help tap what Chief Executive Olaf Koch on Thursday described as the “incredibly vast potential” of the Russian market.
The decline in Russian sales in the April-to-June period has slowed significantly, leading to a “tangible improvement” in operations compared with the previous quarter and was also benefiting the fourth quarter, Koch said on an earnings call.
“We are faster than we thought and we are much more confident (on Russia) than we were three months ago,” Koch said.
Metro said in May it was introducing a new “buy more, pay less” strategy for about a third of the goods it sells, a concept that had already revived sales in Romania and Ukraine and which the group now hopes will help its around 90 Russian stores to target more independent traders, hotels and restaurants.
Shares in Metro were up 10 percent at a two-month high of 11.83 euros by 0902 GMT, their biggest jump since the firm announced the break-up into two independent divisions in July 2017. It was the biggest gainer on Germany’s mid-cap index MDAX .MDAXI.
“We have written the first chapter of the new Russia story but this book will be a long one,” Koch said.
“Russia appears to have been less negative than expected by the market and ourselves,” Cedric Lecasble of financial services firm Raymond James said in a note.
Quarterly EBIT at Russian operations fell to 58 million euros ($67.6 million) from 71 million, Metro said, adding it expected full-year earnings before interest, tax, depreciation and amortization (EBITDA) to drop sharply from a year earlier.
Group earnings before interest and tax (EBIT) plunged to 133 million euros from 215 million a year earlier, in line with an analyst forecast in a Reuters poll.
Quarterly sales at the Real hypermarkets fell 7.2 percent while the operating loss widened to 44 million euros amid a wage dispute with German union Ver.di over a new pay accord.
The retailer said it expects the wage impasse to impact earnings at Real strongly in the second half of the year.
Metro, a sprawling conglomerate, has spent several years restructuring and selling businesses, such as its Kaufhof department stores, to focus on its cash-and-carry business and the Real chain.
But its split and separate listing from consumer electronics group Ceconomy (CECG.DE) last July has yet to yield the hoped-for boost to the share price.
The company affirmed its profit and sales guidance for fiscal 2017/18.
Reporting by Andreas Cremer; Editing by Maria Sheahan and David Evans