Page 103 - RUSRptApr17

A weak economy is forcing retailers to reassess their strategies While X5’s revised strategy back in 2013 allowed the company to capture leadership of the food retail sector in terms of turnover in 2016, Magnit, on the other hand, saw a marked slowdown in growth and reported that it was necessary to focus on efficiency, rather than turnover.
The nationwide picture indicates that wage growth is skewed towards high-income regions such as Moscow and St. Petersburg.
Dixy released weak results at end 2016 and witnessed a shakeup in top management, which came on board less than a year ago. Implementation of the revised strategy, adopted only at end 2016, remains questionable.
Lenta recently showcased its revised strategy, in which the focus is on the less capital-intensive supermarket format. This move aims to help the company achieve its growth targets amid saturation of the hypermarket segment. Lenta’s sales growth decelerated in 1Q17, the main disappointment coming from the LfL check. Bankers revised downwards the 2017 revenue forecast, but still believe in Lenta’s ability to deliver a double-digit EBITDA margin this year and over the medium-term.
O’Key demonstrated faster expansion compared to the weak 2015, but we expect to see low EBITDA. The initial results of the new hard discounter format look optimistic, but it is still too soon to make an assessment.
X5 outperformed the market on LfL sales growth, despite declining inflation, due to store base and sales concentration in the Central and North-Western regions, which have the highest incomes. Coupled with the ongoing turnaround in the hypermarket segment, we are even more confident in the company’s successful strategy execution and the stability of its margins.
Magnit : downgraded to U/W. Magnit reported mixed Q1 results, positively surprising the market on EBITDA, but disappointing on sales growth. Given the slow real wage recovery in Magnit’s core regions, as well as its store redesign program, VTBC says it believes the consensus is overly optimistic on its 2017 sales growth and profitability and forecast 3% and 4% below the consensus on Magnit’s 2017 revenue and EBITDA forecasts, respectively, and says the current consensus EBITDA margin estimate of 10.2% (0.2pp higher than 2016) is unrealistic.
103 RUSSIA Country Report April 2017 www.intellinews.com