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UPDATE 1-Russian retailer Lenta expects consumer spending to stay weak in 2017
February 16, 2017 / 5:21 PM / 10 months ago

UPDATE 1-Russian retailer Lenta expects consumer spending to stay weak in 2017

* To open fewer hypermarkets in 2017, more supermarkets

* Capex seen falling 26 pct in 2017

* Private consumption still sluggish

* Core profit margin slips to 10.4 pct in 2016 (Adds 2017 store and capex guidance, longer-term targets, share price)

MOSCOW, Feb 16 (Reuters) - Russian food retailer Lenta will focus on opening more supermarkets this year and fewer hypermarkets as it expects consumer demand to remain weak.

Despite signs of a recovery in the Russian economy due to a rise in oil prices, private consumption - the biggest driver - has yet to pick up.

Hypermarkets tend to be worse hit than supermarkets when consumers cut back and Lenta said on Thursday that it was cheaper to invest in supermarkets as they are mostly housed in rented properties.

It said it plans to open about 50 supermarkets, up from 17 last year, expanding into new regions starting with Novosibirsk in Siberia.

It will also open around 30 hypermarkets - its core store format - this year, down from 51 in 2016. Eleven of those 51 were via the acquisition of Kesko’s Russian food retail business.

“We see an opportunity for supermarkets to gain a substantially bigger share of the market as customers become more demanding,” Lenta said in a presentation to investors in London on Thursday, which was published on its website. “Our value for money supermarket is well positioned to capture this growth.”

Capital expenditures will decline 26 percent to around 40 billion roubles ($696 million), the company said in a statement, after reporting a 6 percent fall in second-half net profit to 6.9 billion roubles.

While the company has been investing in new stores, it has had to cut product prices to attract customers and it said its 2016 core profit margin slipped to 10.4 percent from 11.1 percent.

At least one top shareholder, U.S. private equity fund TPG, is considering reducing its stake in the company, sources told Reuters this week.

Lenta said it sees no signs that consumer budgets will improve in the short term.

“Continued deterioration in consumers’ purchasing power combined with increasing price sensitivity and promo orientation is putting additional pressure on retailers,” Lenta’s Chief Executive Jan Dunning said.

“Our outlook for the short-to-medium term remains quite cautious,” he said in the statement.

Longer term, the retailer aims to double its selling space by the end of 2020, and said it sees good opportunities for both its retail formats.

Shares in Lenta fell 3.2 percent on Thursday to $7.38. ($1 = 57.4780 roubles) (Reporting by Maria Kiselyova; Editing by Jason Neely and Susan Fenton)

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