March 5, 2018 / 10:19 AM / a year ago

Russia's Detsky Mir expects margins to decline in 2018

MOSCOW, March 5 (Reuters) - Russia’s largest children’s goods retailer, Detsky Mir, expects margins to shrink in 2018 as consumers seek lower-priced goods, CEO Vladimir Chirakhov said.

The retailer plans to reduce costs and increase productivity in order to maintain profitability and high growth rates, Chirakhov said.

Consumers “are increasingly moving to the low-cost segment, choosing ever cheaper goods, both in clothes and in toys”, Chirakhov told Reuters in a phone interview.

“And we are lowering margins, moving into a cheaper segment. This will continue, we expect, in 2018,” he said.

Detsky Mir saw its earnings before interest, taxation, depreciation and amortisation (EBITDA) margin in the fourth quarter fall to 13.7 percent from 14.1 percent a year earlier, he said.

Like-for-like sales growth slowed to 7.2 percent from 9 percent, although the company managed to increase its net profit by 19 percent, its results showed on Monday.

Chirakhov said its market share stood at about 20 percent in 2017, according to preliminary estimates.

A number of players are expected to leave the market this year, he said, adding this could help Detsky Mir.

Russia’s economy grew 1.5 percent in 2017 after two years of recession and growth is expected to accelerate this year.

Retail sales rose 2.8 percent in January and are expected to grow by 2.7 percent this year, with anticipated interest rate cuts seen boosting consumer demand. (Reporting by Olga Sichkar in Moscow; writing by Anna Pruchnicka in Gdynia; editing by Jason Neely)

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