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. Last Updated: 07/27/2016

X5, Magnit Report Surge in Revenues

bloombergHigher customer spending at Perekryostok's stores contributed to a 53 percent growth in first-half gross profits.
X5 and Magnit, two of the country's biggest supermarket chains, on Monday both reported surging year-to-date revenues, but analysts cautioned that only aggressive mergers and acquisitions could guarantee food retailers sustainable growth.

X5, which operates the Perekryostok and Pyatyorochka brand stores, reported a 53 percent growth in gross profit to $617 million in the first half of 2007 on the same period last year.

Most of the growth was due to new stores and higher customer spending, X5 said in a statement. Sales were up 49 percent to $2.35 billion over the same period.

Magnit said in a statement that sales increased 51 percent to $2.2 billion for January through August on new store openings. No profit figure was given in the statement, and a spokesman declined further comment.

Magnit said the company's total number of stores reached 2,046 on 153 openings. The chain is focusing on opening stores in cities with fewer than 500,000 inhabitants and is planning to open a chain of superstores, the statement said.

Both Magnit and X5 operate discount stores.

But while revenues have increased across the sector, analysts said profits could fall on increased competition.

Natasha Zagvozdina, a consumer analyst with Renaissance Capital, said aggressive mergers and acquisitions strategies would be needed over the next few years for the biggest retailers to maintain high profitability.

Brady Martin, a consumer analyst with Alfa Bank, said the retailers' high growth rate was due to the market still being highly fragmented.

"While Russian retailers have 6 percent market share, U.S. retailers have 30 percent and the Europeans 60 percent," Martin said. Even X5 and Magnit each have just a 2 percent market share. "The tendency is one for consolidation -- the large players are now consolidating, growing faster than the market."

Spokespeople for X5 could not be reached for comment Monday.

Andrei Nikitin, an analyst with UralSib, said retail profits were high partly due to larger retailers taking market share from the unorganized sector.

In the last three years, the average growth for the top 10 players is over 50 percent, while the sector's growth was just over 20 percent.

Ramstore and Sedmoi Kontinent are currently the highest-profile takeover targets.

France's Carrefour and X5 have both shown interest in acquiring the Turkish-owned Ramstore chain, which has 53 supermarkets and 11 shopping centers across the country.

Sedmoi Kontinent has long been seen as a potential takeover target after it lost ground to faster-growing X5 and Magnit, and a deal to sell a controlling stake to U.S. buyout fund TPG could be concluded this month, Kommersant reported.

A Sedmoi Kontinent spokesman directed all inquiries to one of the shareholders who also could not be reached for comments.

Wal-Mart and Carrefour have both have been mentioned as potential buyers for Ramstore and Auchan.