German retailer Metro says stiff headwinds may lie ahead

22nd March 2011, Comments 0 comments

Metro, the third biggest global retail group, posted solid 2010 results Tuesday but could now be hit by government austerity measures, political unrest and effects of Asian catastophes and nuclear crisis.

The German rival of Wal-Mart and Carrefour warned of uncertainty to its target of a 10 percent increase in core earnings, with chief executive Eckhard Cordes saying: "We will see if the environment allows us to reach this goal."

Speaking during a press conference, Cordes noted "a series of clouds on the horizon" comprised of "potentially dangerous macro-economic factors that we cannot control."

In response, investors pushed Metro's share price sharply lower on the Frankfurt stock exchange.

Metro has benefitted from a major push into emerging markets however, and said it would continue to invest in more stores this year.

In 2010, sales gained a modest 2.6 percent to 67.3 billion euros ($96.2 billion) while net profit more than doubled to 850 million from 383 million in 2009, a statement said.

Loss-making units like the Real supermarket chain and Kaufhof department stores managed to turn around their operations and contribute to the group's profit, it added.

Overall earnings before interest and taxes (Ebit) before exceptional items gained 19 percent to a record 2.42 billion euros, exceeding the group's own forecast of 2.3 billion.

Exceptional items were essentially the result of a broad restructuring programme begun in 2009, the company said.

Metro executives would recommend a dividend of 1.35 euros per share for the 2010 exercise, up from 1.18 euros a year earlier, it added.

But the group now faces several potentially strong headwinds, as its Saturn and Media Markt electronics stores come up against stiff competition from online retailers, and plan an Internet counter-attack of their own.

The group forecasts gains of four and 10 percent respectively in sales and Ebit this year.

Metro makes two thirds of its sales outside Germany, and is present in several regions that could suffer from the effects of political unrest, like North Africa, or natural catastrophes, like Asia.

In southern Europe, public finance problems and subsequent austerity budgets might also have a knock-on effect on consumer sentiment.

The group nonetheless plans to pursue its strategy of strong international expansion, opening its first store in Indonesia this year and more in China and India.

"The priority is still expanding in Asia and Eastern Europe," Cordes said.

Investments are expected to rise to 2.2 billion euros from 1.9 billion in 2010, with the opening of a total of 110 locations this year.

Investors were not convinced however, and Metro shares fell by 3.13 percent to 48.53 euros in late morning trades on the Frankfurt stock exchange.

The Dax index of leading stocks was 0.18 percent lower overall.

© 2011 AFP

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