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X5 net profit for Q3 misses analyst expectations

Russian grocery store operator X5 Retail Group NV on Oct. 19 reported that net profit for the third quarter missed analyst expectations due to promotional activities aimed at boosting sales and customer traffic.

Net profit for the Netherlands-based company for the three months ended Sept. 30 rose 5.9% year over year to 7.28 billion rubles from 6.87 billion rubles. This was below the S&P Capital IQ consensus forecast of 7.97 billion rubles. The degree of net profit growth narrowed from 65.9% a year earlier.

Revenue for the quarter advanced 24.7% to 319.42 billion rubles from 256.25 billion rubles a year earlier, while operating profit fell 3.2% to 12.84 billion rubles from 13.27 billion rubles. The S&P Capital IQ consensus had forecast revenue of 318.74 billion rubles and operating profit of 14.43 billion rubles.

Gross margin decreased by 69 basis points to 23.7%. X5 said this came as a consequence of spending more on promotional activities to boost sales growth in some categories, as well as to support customer traffic impacted by unfavorable weather conditions and an increase in outbound tourism from major cities.

The drop in gross margin was also due to an increase in the proportion of sales coming from neighborhood discount chain Pyaterochka, the company added. Pyaterochka accounted for 79% of overall sales.

Net retail sales, which represent revenue from operations of X5-managed stores net of value-added tax, jumped 24.9% year over year. This was driven by a 4.6% increase in like-for-like sales and a 27.8% rise in selling space. Net retail sales expanded 28.8% at Pyaterochka, 18.1% at supermarket chain Perekrestok, and 3.8% at hypermarket chain Karusel from a year prior. However, Express convenience stores posted a 13.7% decrease, and the Karusel and Express formats experienced declines in customer traffic.

Selling, general and administrative expenses as a percentage of revenue were unchanged from the year-ago quarter at 17.4%. The percentage of utilities costs against revenue dropped to 1.7% from 1.9%, while the percentage of staff costs to revenue rose to 7.8% from 7.6%. The percentage of lease expenses against revenue edged up to 4.8% from 4.7%.

As of Oct. 18, US$1 was equivalent to 57.37 Russian rubles.