Metro Forecast Disappoints, Shares Slump


Metro, Germany's biggest retailer, disappointed investors on Tuesday with a lacklustre plan to revamp its Real hypermarkets and a conservative 2008 forecast.

Shares of Metro, a barometer for Europe's biggest economy, fell more than 6 percent to lead decliners among German blue chips despite higher 2007 sales and operating profit.

Eckhard Cordes, chief executive since November, said Metro would turn around its Real hypermarkets division within two years, could sell its Galeria Kaufhof department stores, and may float its Media Markt and Saturn electronics chain.

Rival German retailer Arcandor said it had "noted with interest" Metro's remarks that Kaufhof was not a strategic asset but declined further comment. Analysts say Kaufhof could fetch 2.6 billion euros, including real estate.

Metro operates more than 2,200 wholesale stores, hypermarkets, electronics and department stores in more than 30 countries. It takes more than half its sales outside Germany.

The Duesseldorf-based company said it expects 2008 group sales to grow more than 6 percent without acquisitions and currency effects, and earnings before interest and tax (EBIT) to grow 6 to 8 percent.

Metro Outlook Disappoints

The market was expecting EBIT to increase 10.2 percent, according to a Reuters poll of 9 analysts.

"I think there is disappointment on the length of time it will take for Real to turn around," said Niamh McSherry, an analyst at Bernstein Research in London. "The 6 to 8 percent EBIT growth target for next year implies that the Real recovery will be more toward 2009."
No Break-Up

Cordes, a former Daimler executive who sold Metro's 245 Extra supermarkets within months of joining, said Real aims for an EBIT margin of 2-3 percent in the medium term.

Real has 434 stores, of which 349 are in Germany. Of the home stores, about 40 are underperforming and generated losses of 40 million to 50 million euros last year and could be sold.

In 2007, Metro's group sales grew 10.4 percent to 64.3 billion euros ($101.4 billion) and EBIT climbed 8.8 percent to 2.1 billion euros. Analysts polled by Reuters had on average expected EBIT of 2.07 billion.

Cordes assured shareholders that the company would not be broken up, adding that it would remain listed on the stock market, possibly with a changed portfolio. "There will be changes, structural adjustments, portfolio changes. We will acquire companies where it makes sense," he said.

"The news on restructuring is less radical in scope and urgent in timescale than some had hoped," Citi analysts wrote in a report, calling Cordes' plan "underwhelming".

Volker Bosse, an analyst with Unicredit, said judging from the conservative outlook "there cold be some negative one-off items in the pipeline." 

He said he was also disappointed Metro would not speed up expansion at Cash & Carry, Media Markt and Saturn.

Metro said it planned to open about 40 Cash & Carry stores, 15 Real stores and 70 Media Markt and Saturn stores a year.

Investors expect Cordes to sell assets, including property. But Metro said nothing on Tuesday about divesting its 12 billion euros worth of real estate.

Analysts said the worldwide credit crisis may be preventing Metro from detailing plans for its real estate.

Metro shares trade at 15.5 times 2009 earnings, a premium to the sector average of about 14. Some analysts say the current price does not offer an attractive entry point because of uncertainty about how the company will restructure.