UPDATE 1-Germany's Metro eyes Saturn stores sale in France

Fri Oct 29, 2010 11:11am BST

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* Metro in talks with potential investor HTM Group

* Expansion plans centred on Russia, Turkey, China

(adds details, background, analyst comment)

FRANKFURT, Oct 29 (Reuters) - German retailer Metro (MEOG.DE) said on Friday it was evaluating options for the future of its Media-Saturn Group stores in France, one of which was to sell some or all of them to investors.

The world's No. 4 retailer this month opened its first Saturn store in Russia, runs the Cash & Carry, Media Markt and Saturn brands, and in May opened its 250th Saturn store worldwide in the French city of Lyon.

Metro said it had started talks with potential investor HTM Group, adding other options included a strategic partnership and the development of new growth strategies.

Media Markt and Saturn head Roland Weise said the group, Europe's biggest electrical goods retailer, intends to focus more on countries where its business is growing rapidly and where it has the potential to become market leader.

In France, he added, this would only be possible through "disproportionally high effort".

"The French business was never a star performer and was even loss-making," Commerzbank analyst Juergen Elfers said, adding this was a clear sign to investors it would "get it right or quit" to ensure profitability.

"It is a positive sign as it shows that management is not willing to compromise."

RBS analyst Justin Scarborough said: "France is a very difficult marketplace," adding he welcomes the fact the company is considering its options, saying it underscores Chief Executive Eckhard Cordes' commitment to capital discipline.

Saturn stores have sprung up in Greece, Luxembourg, Turkey and Switzerland over the past two years. Weise said that Russia, Turkey and China are central to the group's "capital-intense expansion" plans.

In August, Metro -- which has more than 2,100 stores in 34 countries in Europe, Africa and Asia -- lifted its capital spending budget for this year to 2.1 billion euros ($2.92 billion) from 1.9 billion, but said it is still cost-cutting to boost profits amid sluggish sales.

A Reuters poll of 10 analysts forecasts that Metro's earnings before interest and tax (EBIT) rose by 18 percent in the third quarter. It reports earnings on Nov. 2.

Metro shares were down 2.13 percent at 0902 GMT, underperforming Frankfurt's 0.3 percent weaker DAX index .GDAX. [ID:nLDE69Q1D6]

($1=.7205 Euro)

(Reporting by Josie Cox and Matthias Inverardi, additional reporting by Mark Potter in London; editing by David Hulmes)

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