X5 posts 1Q 2010 net profit of $78.9 million

Russian retail chain, X5 Retail Group, has posted a 1Q 2010 net profit of $78.9 million under IFRS.

The bottom line is a turnaround of the 1Q 2009 net losses of $82.1 million, with EBITDA up 10% year-on-year to $178.5 million and sales revenue up 36% to $2.54 billion.

The company noted that it had reduced debt by $133 million during the quarter, and added that due to the significantly lower inflation over the first quarter it was anticipating revenue growth in the low 20% range in nominal rouble terms, subject to inflationary trends and an upturn in consumer spending.

X5 Retail Group CEO, Lev Khasis, said the low inflation environment with the economy still gaining traction on a rebound during the quarter had placed the low end stores of the group into focus.

“Discounters delivered industry-leading performance. We have introduced a streamlined operational structure for supermarkets and hypermarkets and are adding more affordable choices and loyalty program upgrades for our customers to drive higher basket and benefit from future economic recovery. Integration of Paterson resulted in temporary closings and inventory clearance sales during Q1. All acquired stores have been converted as of May, setting the stage for improved performance. We expect consumer spending to begin to show improvement towards the end of the year. This, in combination with new store openings and post-integration contribution from Paterson, should enable X5 to deliver top-line growth in the low-20% range in a significantly lower than projected inflationary environment.”

X5 Retail Group CFO Evgeny Kornilov added that improved cost controls and the company’s sales policies had helped underpin like for like sales, with the integration of the Paterson chain acquired in 2009 adding to the outlook for improved margins during 2H 2010.

“Consistent execution of our “Close to the Customer” policy resulted in solid LFL sales growth of 7% compared to Q1 2009, the strongest quarter last year prior to the onset of trading down trends. We drove a 60 basis point improvement in X5’s key performance indicator for cost control, SG&A before ESOP as a percent of sales. We used our strong cash position this quarter to continue selective expansion of new stores while reducing total debt by net USD 133 million and further limiting currency exposure.

For the rest of 2010 we expect reduced levels of gross margin investment and improving
EBITDA margin, driven by continuing efficiency improvement and cash generation, postintegration upside of converted Paterson stores and higher overall second half 2010 sales
growth. We are well-positioned in terms of our upcoming loan refinancing later this year,
with good access to RUR bank facilities more than sufficient for our funding needs.”