Germany's Metro cuts 2012 profit forecast to €2B from previous estimate of €2.37B, citing European debt crisis; CEO says company will focus on reducing debt, carefully reviewing expansion plans

NEW YORK , October 8, 2012 () – Metro AG, Germany’s biggest retailer, cut its 2012 profit forecast, saying Europe’s sovereign-debt crisis is weighing on sales in the south and east of the region. Earnings before interest and taxes will decline to about 2 billion euros ($2.6 billion) in 2012, the Dusseldorf-based retailer said in a statement today. It had previously forecast earnings would be about the same as 2011’s 2.37 billion euros. The shares fell the most in about 10 months.

“The European consumer environment has worsened further in recent weeks against the backdrop of rising unemployment, which has hit a new record high in the euro zone,” said the company, which owns Media Markt electronics stores. “This has also started to materially affect Metro Group’s business development, especially in southern Europe and parts of eastern Europe.”

The retailer cut its forecast little more than two months after saying that improving sales at the Media-Saturn unit contributed to a decision to maintain the outlook. Government budget cuts from Spain to Ireland have eroded consumer spending and added to pressure on Metro, whose annual revenue has declined 1.8 percent from a peak of 68 billion euros in 2008.

“They are really struggling with all their formats in Europe,” said Bianca Casertano, an analyst at Planet Retail research company in Frankfurt. “It doesn’t look well.”


DAX Exit


Metro fell 9 percent to 21.46 euros at the 5:30 p.m. close of trading in Frankfurt, the steepest decline since Dec. 6. That extended the stock’s decline this year to 24 percent and cut the market capitalization to about 7 billion euros. The retailer’s shrinking value meant it was removed last month from Germany’s DAX Index of the nation’s biggest stocks.

Metro’s reduced forecast adds to evidence that Europe’s slowing economies are eating into retail sales. Tesco Plc, Britain’s largest retailer, said this week that earnings in European countries including Poland, the Czech Republic and Hungary dropped 28 percent to 171 million pounds ($277 million) in the first half ended Aug. 31.

“In many countries, the conditions for our customers and thus for our business as well have significantly deteriorated in recent weeks,” Metro Chief Executive Officer Olaf Koch said in a letter to investors. “This has led to an even greater restraint in consumer spending, especially in non-food, like consumer electronics.”

Koch is focusing on the Cash & Carry wholesale business and the Media-Saturn electronics chain while cutting investment in Kaufhof department stores and Real grocery outlets, both of which he has said he may sell.

The CEO said today that he still plans to reduce net debt and will “critically review” expansion plans for 2013.




--With assistance from Sarah Shannon in London. Editors: Tom Lavell, Celeste Perri


To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net


To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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