January 27, 2017 / 7:33 AM / 3 years ago

UPDATE 2-Russian retailer Magnit won't chase market leadership over profits

(Recasts, adds 2017 outlook, CEO and CFO comments)

By Maria Kiselyova

MOSCOW, Jan 27 (Reuters) - Russian food retailer Magnit will not sacrifice profit margins for sales, its chief executive said on Friday, predicting revenue growth in the region of 9-13 percent in 2017.

Magnit, Russia’s biggest retailer by sales since 2013, was overtaken in the fourth quarter of 2016 by X5 Retail Group , which won price-conscious consumers in a tough macroeconomic environment.

Sergey Galitskiy, Magnit chief executive and the firm’s biggest shareholder, said the company would not sacrifice profitability to regain the leading position.

“The top spot is not for us. We are for profit, we are for money, we are for a profitable business,” he said on a conference call with analysts and investors.

His forecast of sales growth between 9-13 percent follows a 13 percent rise in sales in 2016 to 1.1 trillion roubles ($18.4 billion) after growth of 24.5 percent in 2015.

EBITDA rose 4 percent to 108 billion roubles in 2016.

Galitskiy said the company’s core profit margin was unlikely to be “dramatically higher or lower” in 2017 than last year, when it dipped to 10 percent from 10.9 percent in 2015.

Magnit has been growing its store numbers rapidly for a number of years and is now shutting inefficient stores and refurbishing some older ones.

Magnit’s sales forecast may be upgraded in the second half of 2017 if a pick-up in Russian wages gathers pace and boosts demand, said Khachatur Pombuhchan, chief financial officer.

Magnit opened 927 low-cost convenience stores last year and will add a further 1,700 and refurbish around 2,000 shops in 2017, with around 60 percent of new openings expected to come in the second half of the year.

It remains the largest chain in Russia with 14,059 stores.

The company will also open at least 15 large-format hypermarkets, 25 smaller hypermarkets and 1,000 cosmetics shops. Its total capital spending will rise this year from around 70 billion roubles it had projected for 2016 but will not exceed 105 billion roubles, Galitskiy said.

Shares in Magnit were down 1.2 percent by 1549 GMT at 9,900 roubles while the broader MICEX index had added 1.65 percent . According to Reuters data, the company’s market capitalisation fell by around 14 percent over the past year to stand at around $16 billion.

Source text for Eikon: Further company coverage: ($1 = 59.7362 roubles) (Reporting by Maria Kiselyova; Editing by Elaine Hardcastle)

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