Metro AG Reports 2012 Results; Struggle With Margins

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Metro AG reported detailed full-year 2012 results that continue to support the consensus belief that operating margins will reach new historical lows. The company previously released sales and confirmed its prior guidance earnings before interest and taxes (EBIT) from continuing operations of rough EUR 2 billion for 2012. However, management provided a bleak sales and profit outlook for 2013, citing weak consumer demand and further price investments. Metro also cuts its dividend from EUR 1.35 per share to EUR 1.00 per share.

Full-year EBIT margins fell in 2012 from the prior year as follows: at Metro cash & carry stores to 3.0%, down from 3.7%; at Media-Saturn consumer electronics stores down to 1.6%, compared to 2.6%; and at Real hypermarkets to 0.9%, down from 1.2%. EBIT margins at Galeria Kaufhof department stores increased 50 basis points to 4.4%, versus 3.9% in the prior year. The overall consolidated EBIT margin declined about 60 basis points to 3.0%, down from 3.6% in 2011. Going forward, analysts will likely forecast operating margins to fall to 2.4%, a new historical low. The company does not possess an economic moat, so defending market share will have to come at the expense of profit margins.

Annual LFL store sales fell 1.9% and 0.6% at Media-Saturn and Galeria Kaufhof department stores, respectively. For 2012, LFL unit sales increased 0.2% at Metro stores and 0.1% at Real hypermarkets. On a regional basis, same-store sales declines were prevalent across Western Europe (excluding Germany) but essentially flat in Eastern Europe. The Asia-Africa segment showed mixed results with a 5.6% LFL gain at Metro stores but a 23% LFL decline at Media- Saturn. In the company’s domestic market, LFL sales were negative at Metro and Galeria Kaufhof stores but slightly positive at Media-Saturn and Real formats. Metro derives 38% of its revenues from operations in Germany, 30% from Western Europe, 27% from Eastern Europe and 5% from operations in Asia-Africa.

 

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