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Russia's Magnit Reins In Expansion After Profit Slides

Published on Feb 6 2020 9:40 AM in Retail tagged: Trending Posts / Russia / X5 / Magnit / World News

Russia's Magnit Reins In Expansion After Profit Slides

Russia's second biggest food retailer Magnit plans to 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 Retail Group 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.

Fourth Quarter

Magnit reported a 51.2% year-on-year drop in fourth-quarter net income to RUB 4 billion (€57 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 RUB 60 billion to RUB 65 billion this year, reflecting the reduction in spending on expansion, it said. Magnit had planned to spend between RUB 72 billion and RUB 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.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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