Велес Капитал ИК

investment company

X5 Retail Group

4Q 2019 trading update

January 23, 2020

X5 Retail Group presented its 4Q 2019 and 2019 FY operational results, which we consider to be neutral.

LFL sales of the retailer rose 2.3% in 4Q on the back of an LFL average ticket rising 0.5% and LFL traffic rising 1.8%. We assume the average ticket was pressured by deceleration of food inflation in 4Q to 3.5% and changes in the consumer behavior, and more promotion activities. In terms of formats, we saw the best LFL growth results from Perekrestok supermarkets chain (LFL sales +5.9%), while Karusel showed the worst results (LFL sales -3.9%) due to the sell-off in hypermarkets, which were due to be closed or transferred. According to the press-release, the Group started the year with positive dynamics and LFL traffic rose above 5%. Moreover, the retailer says the new shops concepts, which are planned to be widely introduced this year, showed a double-digit growth of LFL traffic.Total selling space rose 12% YoY in 4Q, which was in line with our targets. Slowdown of the selling space growth rate took place on the back of the reduced number of shop openings and the effect of the high comparison base vs the previous quarters.LFL sales and selling space growth allowed building up the net retail sales of X5 Retail Group by 11% YoY in 4Q 2019 to RUB 467.3 bn. Sales appeared to be rising slower than we expected mostly due to the dynamics of the average ticket of Pyaterochka chain.

The Group will present its 4Q 2019 and 2019 FY financial results on March 19. 4Q EBITDA margin might have suffered the pressure of the negative effect generated by transformation of Karusel chain and one-off payments according to the program of preschedule motivation. We assume EBITDA margin will be below 7%.

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