Russia's Magnit reins in expansion after profit slides

Feb 07, 2020

Russia’s second biggest food retailer Magnit said on Thursday it would open fewer stores this year and cut back on spending in a bid to improve efficiency after its net income more than halved in the fourth quarter.

Magnit, whose low-cost shops have been struggling to compete with market leader X5 in a weak economic environment, said it planned to open about 1,300 stores on a net basis in 2020, down from 2,377 in 2019.

“(The) store opening programme of the current year reflects stricter return requirements and a greater focus on operating efficiency. Closures include stores in different regions which do not meet company’s profitability and return criteria,” it said in a statement.

Magnit said most new stores this year would mainly sell home and personal care products and it would only add a net 250 outlets in its main grocery format compared with 1,195 in 2019.

 

Magnit reported a 51.2% year-on-year drop in fourth-quarter net income to 4 billion roubles ($63 million) and a sharp decline in its core profit margin.

Shares in Magnit were down 2.7% in early trading in Moscow, underperforming a 0.65% rise in the broader market.

Capital expenditure will be 60 billion to 65 billion roubles this year, reflecting the reduction in spending on expansion, it said. Magnit had planned to spend between 72 billion and 75 billion last year though it did not disclose its final capital expenditure for 2019 on Thursday.

Magnit’s senior management was overhauled after VTB , Russia’s second biggest bank, bought a stake in the retailer in early 2018. ($1 = 63.0100 roubles)

Source: Reuters

Reporting by Maria Kiselyova; Editing by Katya Golubkova and David Clarke