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UPDATE 2-Russia's X5 Retail halves sales growth forecast
October 11, 2012 / 10:26 AM / 5 years ago

UPDATE 2-Russia's X5 Retail halves sales growth forecast

* Revises 2012 growth guidance to 7-9 pct from 15 pct before

* Says needs another year for full adaptation of new strategy

* Q3 net retail sales up 10.4 pct yr/yr vs 13 pct forecast

* Q3 like-for-like sales down 0.7 pct vs 1.1 pct fall in Q2

By Maria Kiselyova

MOSCOW, Oct 11 (Reuters) - X5, Russia’s biggest food retailer by sales, halved its growth forecast on Thursday after sales fell short of expectations in the last three months as fewer customers shopped at its older stores.

The company is now expecting revenue to increase this year by 7-9 percent instead of the 15 percent which it previously predicted, Chief Financial Officer Kieran Balfe said on a conference call with analysts.

Part-owned by billionaire Mikhail Fridman’s Alfa Group, X5 has been dogged by operational problems since changing its strategy last year to focus on organic expansion rather than acquisitions, and give managers more independence.

Sales growth has since slowed sharply despite generally strong consumer confidence. A number of key senior executives have also resigned to be replaced by new managers mainly from foreign retail chains.

“We are still in the process of learning to work under this new paradigm ... I think we will need 2013 to fully complete the process of adaptation,” said X5’s interim chief executive Stephan DuCharme, who took over in July.

“I would like to underline that we will not grow at any cost,” he added.

He rejected analysts’ suggestions that the company lacked a clear strategy or was in the midst of a management crisis.

Its London stock was down around 3 percent at $19.80 a share, underperforming chief rival Magnit which gained 1.8 percent.

X5 had already warned in August it could miss its full-year sales growth target after a weak start to the third quarter. On Thursday it reported a 10.4 percent rise in net retail sales over the quarter, short of the 13 percent forecast made by analysts.

In the first nine months of 2012 sales rose 8.2 percent to 356 billion roubles ($11.45 billion). In the whole of 2011 X5 generated around 454 billion roubles in sales.

While quarterly sales growth was helped by the addition of 174 new outlets sales at stores open for at least a year prior to the reporting periods fell 0.7 percent.

X5 said same-store customer numbers fell 2.5 percent, offsetting a 1.8 percent rise in the average bill, due mainly to the underperformance of its hypermarkets.

“We continue to believe that the on-going weakness in X5’s sales is driven by continuing issues with logistics, product availability and assortment, lower than expected efficiency of its promo and advertising push, and mounting competition pressures,” Otkritie analysts wrote in a note.

In contrast Magnit boosted sales growth in the third quarter as customers spent more in its cut-price stores, as official data showed consumers turned more price-conscious in response to a faltering global economy, higher inflation and a weaker rouble.

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