Report on the Course of Business of Praktiker AG in Q1 2013
Long winter blocks start into the spring season
• Store conversions from Praktiker to Max Bahr continued as planned
• Positive business development expected for the coming months
Hamburg – 25 April 2013. Two factors have materially shaped business development at Praktiker AG in the first quarter 2013: the continued conversion of German Praktiker stores to the brand Max Bahr and a long winter that largely blocked the start into the spring season. As a consequence, Group sales declined by 10.4 percent to 570.1 million euro year-on-year. At the same time, the operating loss that traditionally characterises this season rose from 59.1 million to 91.7 million euro in spite of further cost savings.
“The snowy and much too cold weather in the first quarter 2013 has left deep marks in Praktiker AG’s course of business and interrupted the upward trend of the previous months”, explained the Chairman of the Management Board, Armin Burger, speaking to the press in Hamburg on Thursday. Now, the motto was to “forget it and focus all efforts on satisfying the backlog demand for DIY and gardening products in the second quarter”. Despite the weather-related setback in the sales and earnings development there was no reason to deviate from the course of a strategic repositioning of the group. “Under difficult general conditions we succeeded in driving the core element of this process, the conversion of large parts of the German Praktiker store portfolio to the brand Max Bahr, as planned, and we will continue to do so in the second half as planned”.
An analysis of the first wave of stores converted since autumn 2012 had shown that, irrespective of the sales volume, the gross margin generated at these locations soon reached the level of the tried and tested existing stores of Max Bahr. “This is what we wanted to see”, said Burger, “this is what counts”.
“In addition”, continued Burger, “we see that sales are now picking up as the temperatures rise. We therefore consider our expectations to be justified that at least part of the sales volume will shift and that business will develop positively in the strong quarters of spring and summer”.
Sales decline in March
The Praktiker Group generated net sales in the amount of 570.1 million euro in the first quarter of 2013 (Q1 2012: 636.3 million euro). The decline amounted to 10.4 percent in absolute figures and 8.8 percent like-for-like. These figures are to be read retroactively excluding the operations in Turkey for which planned insolvency proceedings were instituted in February and those of the subsidiary bâtiself in Luxembourg whose divestment process has reached an advanced stage.
The drop in sales was mainly attributable to the month of March. On account of the unusually long cold weather, the spring business – unlike in March 2012 – did not pick up towards the beginning of the second quarter as usual. Although the sales trend in Germany still came in at the prior year level during the first two months of the year, it was only possible to generate four fifth of the year-earlier sales in the month of March, which was one of the coldest in the history of weather records.
In total, Q1 2013 sales in Germany declined by 9.9 percent (like-for-like 7.7 percent) to 457.7 million euro. According to all indicators available, this drop should be lower than the industry average, but it came at the expense of major price concessions in the framework of advertising campaigns that weighed on the gross profit on sales.
Like in the last quarter of 2012, the allocation of the sales share to the domestic sales divisions was characterised by the continued conversion of stores from the Praktiker portfolio to the higher-positioned Max Bahr brand. While sales at Praktiker declined by 25.4 percent year-on-year they increased by 22.0 percent at Max Bahr. In this context it must be considered that all foregone sales caused by the conversion of the 27 stores which changed brands during the first quarter had to be shouldered solely by Max Bahr.
Also in the International segment, sales continued to decline. Excluding Turkey and Luxembourg, International sales came in at 112.4 million euro which is 12.5 percent short of the prior-year value (like-for-like 12.9 percent). Here, too, the long winter season led to similar sales problems as in Germany and prevented a continuation of the stabilisation trend that had built up in the course of 2012. The sales proceeds generated in Turkey dropped by 19.5 percent to 14.8 million euro, those in Luxembourg by 8.8 percent to 7.6 million euro. In the quarterly report, these two countries are reported separately under “discontinued operations” as a combined total.
Operating earnings (EBITA) deteriorated
In view of the fact that not only sales declined but that, owing to the long winter, also seasonal articles had to be sold off at high price discounts to the detriment of margins in Germany and abroad, also the group’s operating earnings deteriorated. Q1 2013 EBITA were reported at minus 91.7 million euro (2012: minus 59.1 million euro). In Germany, where EBITA were in addition affected by expenses for the store conversions from Praktiker to Max Bahr, the net operating loss for the quarter increased from 44.2 million euro last year to 72.8 million euro this year. The segment International – again excluding Turkey and Luxembourg – reported EBITA of minus 18.9 million euro (2012: 14.9 million euro).
Store portfolio: major changes in Germany, minor changes abroad
The German store portfolio of the Praktiker Group as at 31 March 2013 changed significantly year-on-year while the international store portfolio changed only slightly. In this context, the future main sales division Max Bahr extended its store portfolio from 78 to 132 stores as a result of the realignment of the German business activities and the number of Praktiker stores decreased from 234 to 169. 14 stores are operating under the name of the secondary sales division extra BAU+HOBBY, three less than one year earlier. Abroad, two Hungarian test stores with a new small-format concept aimed at tapping rural regions were opened. With regard to store closures, Praktiker AG reports 14 closures in Germany and one abroad. As a consequence – and excluding the nine stores in Turkey and the three stores in Luxembourg – the group-wide portfolio comprises 414 stores of which 99 outside Germany.
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