X5 Retail Group on Monday announced its faith in a consumer recovery with plans to boost spending on new stores next year by nearly one-third.
The expansion plans will be aided by a stronger financial position, as X5 said it has reached an agreement with state lender Sberbank on a credit line for refinancing of its $1.1 billion syndicated loan.
Retailers have had a tough year as disposable incomes shrank and unemployment spiked, but X5’s significant exposure to a low-price format so far has helped the company stem declines in sales.
The company, which has low-cost stores as well as hypermarkets, will open up to 275 new stores in Russia, including between 200 and 250 discounters, compared with about 150 discounters planned for this year, and more stores to be launched in provinces still not fully saturated with retail chains.
Capital expenditures will rise to 18 billion rubles ($623.5 million) from 14 billion rubles forecast for this year, Russia’s biggest grocery chain by sales said.
“While consumer confidence remains weak, we are actively positioning X5 to benefit from future economic recovery through a balanced execution of like-for-like growth strategy and stepped-up expansion,” CEO Lev Khasis said in a statement.
X5, 48 percent owned by billionaire Mikhail Fridman’s Alfa Group, will buy smaller grocery chain Paterson for $189.5 million and assume its $85 million debt, part of its strategy of growth via acquisitions.
Khasis reiterated comments earlier this month that the consumer market remained in a trough for the short term, with recovery likely no earlier than in late 2010.
X5 had fixed its 2009 capex target at 14 billion rubles ($484.9 million), but a shift of focus to renting space rather than owning it has allowed X5 to save cash that it will use to finance the Paterson acquisition.
In the first nine months of 2009, X5 spent $149 million against $874 million in the year-ago period and beat its own expectations for growing selling space.
Third-quarter net profit totaled $73 million, helped by a $39.7 million foreign exchange gain, as the ruble, X5’s operating currency, strengthened against the dollar, its reporting currency.
The figure missed an average forecast of $81 million in a Reuters poll as analysts had expected a forex gain of $46 million. Core earnings, or earnings before interest, taxation, depreciation and amortization, fell 15 percent to $162 million, affected by a $26 million cost related to its employee stock option program.
Analysts praised the company’s tight cost control and pointed to strong underlying trends in its performance.
“As profits were severely affected by noncash items, we believe investors would most likely focus on underlying margin performance, which was promising,” Citigroup wrote in a note.