Russian retailer X5 to invest in growth again after Q2 profit jumps

MOSCOW (Reuters) -Russia’s leading food retailer X5 Group said on Tuesday it planned to resume investments to grow and expand the business after reporting a 79.4% jump in second-quarter net profit to 26.8 billion roubles ($446.7 million).

The retailer, whose revenue rose 18.6% in the quarter to 648.0 billion roubles, said it would continue looking for M&A opportunities.

X5 said it anticipated margins stabilising at lower levels in the second half of the year, helped by strong profitability this quarter and as the group develops its private labels and diversifies its supplier base.

Western sanctions against Moscow over its actions in Ukraine have hit the Russian economy, particularly crippling its financial sector and imports, which have slowed markedly.

“The group is not subject to any sanctions or restrictions at the moment, but is likely to encounter challenges due to sanctions on (the) financial system and certain imports into Russia,” X5 said in its earnings report.

CEO Igor Shekhterman said X5 had made price investments into basic staples to offset inflation, which soared after Russia sent tens of thousands of troops into Ukraine on Feb. 24.

Last month the retailer said Russian shoppers were switching to cheaper food items because of a drop in real disposable income, with its discount chain Chizhik seeing significant growth in sales.

Shekhterman earmarked Chizhik as a particular target for development, planning more than 400 new store openings this year, and said he wanted the network to become as accessible to many Russians as soon as possible, after a 30-fold increase in Chizhik’s first-half revenue year-on-year.

“(Chizhik) performs a social function that is relevant for today: raising the quality of life for the population through providing affordable, quality food at low prices,” he said in a statement.

The company’s Moscow-listed depositary receipts were 1% higher as of 0803 GMT.

X5, which acquired 15 Prisma supermarkets from Finnish firm SOK Retail in June, said it would continue looking for attractive inorganic growth opportunities arising in the market.

Adjusted earnings before interest, tax, depreciation and amortisation increased 26.9% to 91 billion roubles in the quarter.

($1 = 60.0000 roubles)

(Reporting by Reuters, Editing by Louise Heavens)