German retail giant Metro to drop Kaufhof chain

Just a few months after a major shakeup in leadership, German retail giant Metro has announced it will separate from its department store chain Galeria Kaufhof.

When Metro presented its financial statement in Düsseldorf on Tuesday, new leader Eckhard Cordes said Kaufhof is no longer a strategic business for the company any longer. Metro, which said net profit fell last year because of taxes and negative foreign exchange effects, plans to carefully consider options for the department store chain, he said.

Kaufhof, which has some 19,000 employees, increased sales in 2007 after increasing their upscale product offerings. Sales rose by 1.5 percent to €3.6 billion. In 2007, Metro earned a record total revenue of €3.6 billion, and earnings before interest and taxes (EBIT) rose more than 30 percent to reach €107 million.

Metro’s ailing grocery chain Real will be aggressively overhauled, meanwhile electronics chains Media Markt and Saturn will continue grow substantially, he said.

Real profits were hit by an operating loss of €16 million, a Metro statement said. Real has invested heavily in opening new stores in Ukraine and Romania. It has also paid a price to integrate new acquisitions that include former Geant stores in Poland and Wal-Marts in Germany.

“Metro AG will not break apart,” said Cordes, who has been managing director of Metro since early-November. Since then there has been speculation that the company could dismantle itself completely. Cordes emphasized that Metro shareholders don’t think this would make sense, though big changes are on the way.

Metro net profits came to €853 million in 2007. Metro did not provide a comparable figure for 2006 but the group had previously posted a net profit of €1.05 billion for that year. The group posted an operating profit of €2.1 billion. When exceptional items were stripped out, that represented an annual gain of 8.8 percent.

Sales rose 10 percent to €64.3 billion, in large part as a result of last year’s acquisitions.

For 2008, Metro forecast sales would grow by more than six percent and that core earnings before exceptional items would increase by between six and eight percent.