December 19, 2018 / 6:12 AM / 6 months ago

Germany's Ceconomy adds to retail misery with gloomy outlook

BERLIN (Reuters) - Ceconomy (CECG.DE), Europe’s biggest consumer electronics retailer, expects profits to fall again in 2018/19 as it faces competition online and seeks a new leadership team, sending its shares tumbling 13 percent to a record low.

FILE PHOTO: A logo is pictured on a Media Markt supermarket in Conthey near Sion, Switzerland, February 9, 2018. REUTERS/Denis Balibouse/File Photo

The warning from Ceconomy, formerly part of Metro AG (B4B.DE) and the operator of Media Markt and Saturn stores, is the latest blow to a European retail sector reeling in the days before Christmas.

It comes after British online fashion retailer ASOS triggered a sell-off in stocks around the world on Monday when it raised concerns about sagging trading spreading from stores to ecommerce players.

Ceconomy, which runs more than 1,000 stores across Europe, expects operating profit to decline slightly in 2018/19, while sales adjusted for currency and portfolio changes should rise slightly. It said it would not pay a dividend for 2017-18.

Faced with fierce competition from ecommerce players such as Amazon (AMZN.O), Ceconomy has been trying to better integrate its stores and its online range, and to sell more services, like fixing and installing electronic devices.

Ferran Reverter, who took over as managing director of Ceconomy’s MediaMarktSaturn in October, said the strategy had already proved successful in Spain, Italy and the Netherlands but needed to be implemented faster in its core market Germany.

Reverter told analysts that the Black Friday sales had gone better than last year but said he remained cautious about Christmas trading.

Ceconomy’s outgoing finance chief Mark Frese told analysts that the company would probably need longer to reach medium-term margin targets it set last year.

“We expect the retail and consumer electronics environment to remain challenging in the year to come,” Frese said in the earnings statement.

Europe’s other two major consumer electronics groups are also in the doldrums — Britain’s Dixons Carphone (DC.L) cut its dividend last week and warned its turnaround plan would take time, while Fnac Darty (FNAC.PA), in which Ceconomy owns a 24 percent stake, has been hit by “yellow vest” protests in France.

Shares in Ceconomy traded almost 11 percent lower at 3.2 euros at 0935 GMT, having lost three-quarters of their value this year.

NEW LEADERSHIP NEEDED

The Ceconomy outlook does not include potential expenses from the reorganisation of the company, nor the costs resulting from changes in top management.

Ceconomy said in October that CEO Pieter Haas was leaving after a string of profit warnings, with management board member Dieter Haag Molkenteller taking over on an interim basis.

Ceconomy, which had already reported that sales in its fiscal fourth quarter to the end of September were hit by unseasonably warm weather, said net profit in the period fell 28 percent to 84 million euros ($96 million).

FILE PHOTO: People use escalators at a Saturn electronic retailer inside a shopping mall in Magdeburg, Germany, March 11, 2016. REUTERS/Fabrizio Bensch/File Photo

Profitability fell as lower sales mean the company receives fewer rebates from the companies from which it buys items like televisions and mobile phones in bulk.

Ceconomy on Tuesday appointed Bernhard Duettmann, currently a member of the supervisory board, as interim finance chief to replace Frese as of Jan. 1, while its search for a permanent CFO and CEO went on.

“Urgent need for a new CEO and a new strategic plan,” wrote Bryan Garnier analyst Clément Genelot.

Reporting by Emma Thomasson; Editing by Amrutha Gayathri and Keith Weir

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