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UPDATE 3-Future bleak for Metro after Q1 profit halved

Published 05/05/2009, 08:32 AM
TGT
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* Adjusted EBIT dips almost 50 percent to miss estimates

* Metro warns of slower sales as unemployment rises

* Adidas says aims to save more than 100 mln euros per year

* Adidas shares fall up to 11 pct, Metro as much as 6.9 pct

(Adds analyst comments and detail on Adidas)

By Eva Kuehnen and Maria Sheahan

DUESSELDORF/FRANKFURT, Germany, May 5 (Reuters) - German Metro, the world's fourth-largest retailer, said first-quarter profit had halved in the worst slump since the Great Depression, and shied away from giving a detailed outlook.

The worse-than-expected result was further evidence of the slowdown ravaging businesses worldwide. Last month, French Carrefour, the world's second-biggest retailer, reported its first slip in sales in six years.

German sports goods company Adidas also shocked investors on Tuesday, also sending its stock price tumbling with plans to cut jobs, close regional offices and potentially stores after first-quarter profit missed forecasts.

Metro said there was "no indication of a fast economic recovery" and told investors to brace themselves for "less dynamic sales and earnings development at Metro in 2009" as rising unemployment empties supermarket aisles.

Unemployment in Metro's and Adidas's home markets rose for the sixth consecutive month in April to hit its peak since 2007 while retail sales in Europe's largest economy fell by a more-than-expected 1.5 percent in March.

Metro shied away from giving a detailed outlook for 2009, saying economic uncertainty made a reliable forecast for this year impossible.

It also said sales growth this year would likely fall well short of its medium-term target of more than 6 percent.

To weather the economic storm, Metro launched a restructuring programme called Shape 2012 in January which will axe 15,000 jobs and aims to fatten profits by 1.5 billion euros ($2 billion) by 2012.

The programme ate into first-quarter earnings before interest and tax, which fell more than two thirds to 51 million euros, missing analysts' average forecast.

Adjusted EBIT, which Metro uses for its medium-term outlook, halved mainly due to the collapse in value of Eastern European currencies -- a region which generates more than a quarter of Metro's sales. Sales fell 2.5 percent to 15.2 billion euros.

UniCredit's Volker Bosse kept his "sell" rating for Metro "due to a deteriorating macroeconomic environment all over Europe and the uncertainties regarding the Eastern European currencies", he said in a note to clients.

Metro stock was down 3.4 percent at 31.98 euros at 1228 GMT.

ADIDAS PLANS TO GET ON TRACK

Adidas shares were down 8.8 percent at 26.91 euros, making them the biggest faller in the German blue-chip DAX index, which was down 0.6 percent.

"The situation appears tense with Adidas launching a restructuring programme," said Commerzbank analyst Christoph Dolleschal, confirming his "reduce" rating for the stock.

"We feel the effects of the economic downturn in many of our key markets," said Adidas Chief Executive Herbert Hainer.

Adidas launched a restructuring programme to save more than 100 million euros ($134 million) in costs per year by closing regional offices in Europe and Asia, potentially also underperforming retail stores and by cutting about 1,000 jobs.

The world's second largest sporting goods maker after Nike expects 2009 earnings per share around break-even in the first half and sees earnings turn significantly positive in the second half, although remaining lower than a year earlier.

In light of crumbling consumer demand, U.S. bellwether Nike said in March it planned to halt production at three shoe factories in China and one in Vietnam.

Overall, Adidas said 2009 margins, net income and earnings per share (EPS) would decline due to higher operating costs. Group sales would drop at up to mid-single-digit rates. ($1 = 0.7467 euro)

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