"Magnet" caught the drop in incomes of Russians

The largest retailer in Russia refused to develop hypermarkets and will focus on "shops near the house."
The second largest Russian food retailer, Magnit, decided to refuse to work with the hypermarket format. For five years, the company expects to open 23.7 thousand new stores in smaller formats and increase market share from 9% to 15%. The cost of achieving this goal, analysts estimate more than 260 billion rubles. Loud plans frightened investors: the paper "Magnit" sharply cheaper yesterday.

"Magnet" will not develop the format of hypermarkets in the future, the retailer told investors yesterday. He will concentrate on supermarkets, "at home" stores, cash & carry stores "Magnet Opt" and other alternative formats. On their territory, Magnit plans to develop its own cafes, pharmacies, shops with goods for children and animals. The first two formats are already working as pilot, the rest are in development. In just five years, Magnit plans to open 23.7 thousand new stores. Of these, 9.4 thousand - "Magnet at home" (the total number will rise to 22.8 thousand), 400 - supermarkets "Magnit Family" (900), 4.9 thousand - drogeri "Magnit Cosmetic" (9, 3 thousand), 9 thousand— express shops, “Magnet Opt” and pharmacies. The total number of Magnit stores by 2023 should grow by almost 40%: at the end of June, the network united 16.96 thousand objects, of which 12.5 thousand were “at home”, 213 were supermarkets, 244 were hypermarkets and 4 thousand drogers.

The refusal of hypermarkets in favor of city supermarkets is typical for all major networks, says Mikhail Burmistrov, head of Infoline-Analytics. “Magnit’s many hypermarkets are located in objectively unsuccessful locations,” the expert adds. He assumes that part of the stores will be reformatted into “Magnet Opt”, focused on small retail trade. Seven freestanding hypermarkets with an area of ​​4.5–5 thousand square meters. m. Magnit expects to transform into shopping and entertainment centers based on the new format of Family Plus supermarkets.

By 2023, Magnit expects to increase its share in the food retail market to 15%. In Moscow, the share in five years should grow from 4% to 10%, and St. Petersburg - from 8% to 13%. Magnit has planned the most aggressive growth in Siberia: from 3% to 14%. Mr Burmistrov calls the announced plans overly ambitious. He considers a growth in the next five years a growth of 4–4.5 percentage points. “The company will be under pressure from high expectations for growth rates and investors' fears that aggressive expansion will reduce business margins,” he argues. Director of Prosperity Capital Management (a minority shareholder of Magnit) Alexey Krivoshapko believes that the strategy implemented by the retailer is implemented. “We are looking at returnable investments, if they make up 20% of the invested capital - everything suits us,” he says.

However, not all investors of “Magnit” positively perceived the announced changes. Quotes of the company on the London Stock Exchange on Wednesday fell by 6.63%, to $ 14.78 per GDR. The company's capitalization amounted to $ 7.53 billion. Head of Freedom Finance's trading department Georgy Vaschenko calculated that the sharp increase in the volume of retail space planned by Magnit would require an investment of 263.7 billion rubles. “That is, the annual level of capital expenditures will remain in the range of 60–70 billion rubles, which is the lion’s share of the operating cash flow. This can lead to an increase in debt, ”he explains. Another concern for investors, Mr. Vashchenko, calls a vaguely described dividend policy: “The company does not give guidelines for calculating free cash flow: in 2017 it was negative, in the first half of 2018 - 2.4 billion rubles. Therefore, it cannot be excluded that the year will go without interim dividends. ” The general director of Magnit, Olga Naumova, said on Wednesday that the dividend policy will be reviewed at the company's next board of directors in late October.