Low-cost food retailer Magnit, Russia’s second-biggest by revenue, pledged to sacrifice profitability to retain market share as it posted third quarter earnings ahead of forecasts.
Magnit, which has been expanding its mostly discount store chain rapidly in Russian regions since 1998, has outperformed competitors in terms of sales growth and margins.
Third-quarter net profit almost doubled to $200 million, beating a $155 million market forecast, and earnings before interest, taxation, depreciation and amortisation (EBITDA) grew 60 percent to $383 million for an 11 percent margin.
Sergei Galitskiy, Magnit’s founder and chief executive, said the company was reaping the benefits of scale from its supply chain and enjoyed broadly the same purchasing terms as its bigger rival X5.
An EBITDA margin of 11 percent is untypical of the sector, where other publicly-listed players recently recorded margins of 6 to 8 percent.
Galitskiy said he expected it to decline in the future when competitors become more aggressive.
“If the market requires lower prices, we will give even lower prices. We will not hold on to EBITDA,” Galitskiy told analysts during a conference call, adding he saw no reason to be worried as long as the EBITDA margin stays above 6.5 percent.
He told Reuters in an interview this month he would stick to a winning formula of targeting low- to middle-income shoppers through mostly convenience stores.
Source: www.reuters.com