Grocery chain Magnit's like-for-like sales growth picked up in the second quarter as it finally managed to reverse declines in customer traffic and benefited from a broader market recovery.
A deep economic crisis last year prompted Russian retailers to fight for cash-strapped customers, and Magnit, which operates Russia's biggest chain of small budget stores, had seen shoppers flee before it moved to lower prices.
Price cuts are starting to bear fruit, supported by a broad consumer spending revival, as second-quarter like-for-like sales grew 7.6 percent after a 2.9 percent rise in the first quarter, Magnit said Monday.
"The acceleration in comparable-store sales growth is encouraging, and demonstrates the success of Magnit's initiatives to invest in price to drive traffic, particularly in the discounter format," Alfa Bank wrote in a note.
Traffic rose 3.6 percent year on year, including a 3.4 percent rise at convenience stores and an 11.6 percent increase at hypermarkets, Magnit said in a statement.
The average bill was 3.9 percent higher than a year ago.
Shares in Magnit, controlled by chief executive Sergei Galitsky, rose by 5.6 percent in Moscow, outperforming the benchmark MICEX Index, which closed up 1.5 percent.
Rival X5 Retail Group — which lowered prices much earlier than Magnit and reaped the immediate benefits — said Friday that second-quarter like-for-like sales growth slowed to 4 percent from 7 percent in January to March, blaming low food inflation and tougher year-on-year comparisons.
"Q2 marks the first time in over a year that Magnit's reported LFL sales were higher than X5's," said Brady Martin, analyst at Citigroup, adding that the key question was still how much margin investment Magnit had to make in order to achieve those "impressive results."
In addition to the turnaround of same-store sales, Magnit also continued to benefit from its fast expansion in Russian regions which are still highly underpenetrated by retail chains.
The company said net retail sales grew 38.8 percent in ruble terms in June to 18.6 billion rubles ($602.3 million), after 35.4 percent growth in May.
Magnit opened 68 stores on a net basis in June against 45 in June last year and 61 in May 2010.
As of June 30, the Krasnodar-based retailer had 3,492 outlets compared with 2,808 a year ago.
"We think strong top-line momentum was driven mainly by improved LFL sales growth, the progressive maturity of stores opened in the last 12 months and new space additions. With same-store sales clearly benefiting from initiatives to improve Magnit's consumer value proposition, we qualify the results as positive," Alfa Bank said.
Magnit's first-half net retail sales amounted to 103.6 billion rubles, an increase of 32 percent year on year.