X5 Soars on Inexpensive Karusel Buy, Earnings

X5 Retail Group, the country's largest supermarket chain, rose the most in almost six months in London trading after reporting a 61 percent sales increase and saying Friday that it would buy the Karusel chain for less than analysts expected.

X5 gained $1.39, or 4.9 percent, to $30.03, the steepest percentage climb since Oct. 15. That increased the market value of the retailer to $6.5 billion.

First-quarter sales advanced to $1.78 billion from $1.1 billion a year earlier after X5 added stores and Russians spent more on food, the company said in a statement. The retailer also said it would pay $920 million to $970 million to acquire the Karusel chain of 23 superstores, less than some estimates.

"Sales are very positive," said Julia Gordeyeva, an analyst at ING Bank in Moscow with a "buy" rating on X5. "Considering improvements they'll be able to achieve in profitability and sales growth at Karusel stores, they are buying it cheap."

The final price that X5 pays will include $140 million of Karusel debt, bringing the total value of the transaction to as much as $1.1 billion, Gordeyeva said. Analysts had expected the cost to be $1.1 billion to $1.3 billion.

X5, which has held an option to buy Karusel since at least 2006, said the final price would be determined by the valuation of existing stores and property under construction.

As much as 25 percent of the consideration will be settled by issuing new shares, according to the company, which said it was still deciding how to fund the balance. One possibility is to ask holders of the retailer's Global Depositary Receipts to subscribe for additional stock on a pro rata basis, X5 said.

The purchase will enable the Russian retailer to "establish a leading position in the hypermarket format, the fastest growing food retail format," in its domestic market, the company said.

X5 said it planned to complete the valuation by the beginning of May and close the purchase on July 1.

First-quarter revenue at stores open at least a year rose 29 percent in ruble terms, X5 also reported Friday. The company added 62 supermarkets in the period, taking the total to 930.

X5, the owner of Perekryostok supermarkets and Pyatyorochka discount grocers, is opening outlets in a market with fewer stores than West European countries. More Russians are shopping for food in stores as a 10-year economic boom drives income growth.

Total customer numbers increased 32 percent from a year earlier to 176.6 million, while the average transaction value rose 23 percent to $11.50, X5 said in the statement.

"They have invested in prices to keep them lower then competitors and won more customers and the market share this way," Gordeyeva said.

Disposable income increased 10 percent last year, prompting expansion of X5 and international competitors such as Germany's Metro and France's Auchan.

"Our market leadership, regional diversification and multiformat strategy enabled us to take advantage of positive macroeconomic performance and the rise in consumer spending," chief executive Lev Khasis said in the statement.