At Ceconomy, the parent company of the technology markets Media Markt and Saturn, there is stress during the otherwise highly profitable Christmas season. Earnings are dwindling, stock prices are falling, and credit ratings are in the doldrums. A savings program should help.
At this time last year, the world at Ceconomy looked a lot better. The group had earned 222 million euros net in the financial year that ended in September, thereby exactly offsetting the losses from the Corona crisis. But this year there is a lot of tension under the Christmas tree, because the big plans from a year ago have had to face a sober reality.
She looks sobering. In the fiscal year that ended in September, sales increased slightly to 21.8 billion euros. However, the profits melted away. Before taxes, they fell by two thirds, net by around half to 126 million euros. The free cash flow is now even negative, the net debt is around two billion euros.
One reason for the poor development is that Ceconomy is not getting the important online business up and running. In the 2021/22 financial year, sales in this area even fell from 6.9 to 5.3 billion euros. The fact that in the end there is still an overall increase in sales in the annual report is thanks to the group’s still strong stationary business in more than 1000 branches worldwide.
But that may not be enough in the years to come. That’s why Ceconomy got a shot across the bow from the rating agency Moody’s at the end of November. They lowered the group’s creditworthiness to level Ba3. That’s a level that Moody’s itself describes as “speculative” and discourages investing. According to the rating agency, there is no risk of acute default, but the rating analysts assume that Ceconomy’s situation will not improve anytime soon.
According to CFO Florian Wieser, the group is not directly at risk. There are still credit lines of up to one billion euros, the business is financed until at least 2026. Wieser is leaving Ceconomy at the end of January. He will be replaced by Kai-Ulrich Deissner from February, who is said to be already beginning to ponder and calculate how the financial situation of the retail giant could be improved.
There are many considerations. Unprofitable of the 1024 branches could be closed, especially since their operation is becoming more and more expensive in times of high energy costs. The actually planned withdrawal from the Swedish market could be postponed to save money. The number of items in the range is to be halved from 40,000 to under 20,000. That would save storage costs. Finally, the two brands Media Markt and Saturn, which are actually congruent, are to be merged more. Although the different branding, product range and advertising campaigns will remain the same in the future. Redesigning all stores under one brand would be too expensive. Overall, the costs should fall by 60 to 80 million euros by 2024, said CEO Karsten Wildberger at the presentation of the annual results.
It is becoming more difficult to finally boost online business. In May it was speculated that Ceconomy could take over the Dutch competitor Coolblue. Although it also has a few branches in the neighboring country, it is particularly strong in the Internet business. A takeover, which Coolblue has always denied, would probably cost between 500 and 700 million euros. Money that Ceconomy no longer has. The first idea to strengthen one’s own Internet business is therefore to open the online shop to third-party providers, as Amazon has been doing for a long time with the Marketplace. Ceconomy wants to earn money from it through advertising.
So far, investors have not trusted the retail group. This year, the share price fell by almost 57 percent. At the end of September, it even marked an all-time low of EUR 1.12, from which it has since risen by 53 percent. The next downward trend started at the beginning of December, with the share price falling by 26 percent within two weeks. Analysts say there won’t be any recovery anytime soon. Since the publication of the annual figures for the 2021/22 financial year, four analysis houses have adjusted their price targets for the coming year. On average, they predict a share price of 1.65 euros – four percent lower than today.
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