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Retail

O'Key Group Records Sales Increase, Expands Discounters

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O'Key Group Records Sales Increase, Expands Discounters

Russian retailer O’Key Group recorded annual revenues of RUB 177.5 billion (€2.32 billion) for full year 2017, a 1.14% increase year on year, as it looks to expand its Da! discount format, according to an investor update published by the group this week.

The retail group’s gross profit rose by 0.5% to RUB40.4 billion, while group EBITDA tallied on par to last year’s levels at RUB 9.3 billion, and its O’Key EBITDA margins was down 0.2 percentage points to 6.8%.

The retailer’s new discounter format Da! grew its revenue by 80% from RUB5.8 billion to RUB10.4 billion, with a sales increase of 52% on a like-for-like basis.

Cost of goods sold (COGS) was up 10 bps to 77.2%, with the overwhelming majority (72.8%) accounting for costs of trading stock.

Logistics

Logistics costs increased by 60bps year-on-year, the group said, largely driven by ongoing work on logistics centralisation and continued expansion of the discounters format during the year, according to the retail group.

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O’Key Group expects the net logistics costs to improve by the end of 2018 as the centralisation of logistics progresses and its processes become more efficient.

Shrinkage costs increases by 10 bps year-on-year partially affected by one-off write offs.

Selling, General, & Administrative (SG&A) expenses remained stable at 20.4% although the largest chunk, personnel costs, declined by 40 bps to 8.8%.

This was largely driven by ongoing business process efficiency increase on both store and head office levels, according to the retailer.

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Operating Costs

Operating lease costs increased by 20bps due to the rollout of discounters in the second half of the year in line with previously announced plans as well as the revision of lease agreements of two hypermarkets during the year.

The retail group’s debt remained at roughly the same level at RUB36.3 billion. However the structure of the debt changed significantly, with long term debt decreasing from 87% in 2016 to 68% in 2017, while short term debt increased its share from 13% to 32%.

Almost all of the group’s debt portfolio (97%) is RUB-denominated and all of its loans and bonds have fixed interest rates.

Outlook

For the year ahead, the group plans to open as many as two new O’Key hypermarkets, with two to three stores planned for 2019 and an accelerated opening rate from 2020.

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It expects net retail revenue to continue in the low single digits and EBITDA margins from 2018-2020 to be as much as 8%.

Meanwhile, it plans to open as many as 30 new Da! discount stores in 2018 with a total of up to 170 stores by the end of 2020, more than doubling its store count of 67, as of the end of 2017.

Net retail for this banner is expected to grow by 50% year-on-year in 2018 with an EBITDA loss expected to decline by up to 50% YoY.

© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Kevin Duggan. Click subscribe to sign up to ESM: European Supermarket Magazine.

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