OREANDA-NEWS. On 11 April 2008 X5 Retail Group N.V., Russia's largest food retailer in terms of revenue, published its retail sales and expansion results for the first quarter of 2008.

Q1 2008 Highlights

• 61% year-on-year growth in USD terms in net retail sales to USD 1,775.1 mln;
• 49% year-on-year growth in RUR terms in net retail sales to RUR 43,064 mln;
• 29% LFL sales growth in RUR terms;
• 62 stores added on net basis;
• 30.1 thousand square meters of net selling area added on net basis;

Lev Khasis, X5 Retail Group CEO, commented:
“We are pleased to report that strong sales growth momentum continued into the first quarter of 2008, with LFL sales exceeding management expectations. Our market leadership, regional diversification and multi-format strategy enabled us to take advantage of positive macroeconomic performance and the rise in consumer spending. We believe that our strong presence in each of the key three formats is crucial for the continuing success of the Company and see further expansion in hypermarket segment as a strategic priority going forward.”

Antonio Melo, X5 Retail Group Chief Operating Officer, added:

“Sales growth of 61% that we recorded reflects our ability to digest and adapt to changing consumer preferences. We are continually improving the value proposition we offer to the market and consequently benefit from enhanced customer loyalty. Thus, in response to consumer demand we are adding two new store concepts to our service offering. We are launching a new supermarket concept under the Green Perekrestok brand in order to widen our customer base and to tailor our products and services to the growing highend consumer segment. We have also developed a new hypermarket concept that we intend to roll out throughout regions of our operations under the Mercado Supercenter brand, building on the successful experience of European retailers, while adapting to the needs and expectations of Russian consumers.”

For the first quarter 2008, LFL sales surged 29% in RUR terms, composed of 10% increase in traffic and 19% increase in average basket, which underlines X5’s ability to capitalize on growth in income per capita and consequent upgrade of spending pattern by Russian consumers. Expansion brought additional 20% in terms of growth.

Hypermarkets

For the first quarter 2008, hypermarket sales surged 55%, excluding FX effect. This growth came as a result of a 29% increase in LFL sales with 26% added by non-LFL stores. LFL sales growth was very strong both in the regions and in Moscow on the back of growing consumer spending and improved hypermarket value proposition helped by successful promotional campaigns. Stronger performance of stores opened after 31 March 2007 and addition of a new hypermarket in Voronezh in the first quarter this year contributed to strong results of non-LFL stores.

Supermarkets

For the first quarter 2008, supermarket sales grew by 45%, excluding FX effect, as a result of 34% surge in LFL sales and 10% coming from expansion. Impressively strong LFL results are mainly due to outperformance of supermarkets located in Moscow and St. Petersburg. We are proud to report that supermarket traffic in Moscow and St. Petersburg posted impressive growth of 20% and 19%, respectively, which once again underscores our leading positions in these core markets.

Soft Discounters

In the first quarter 2008 soft discounter sales grew by 51%, excluding FX effect, as a result of a 26% surge in LFL sales and 25% coming from expansion. The strongest LFL growth in the soft discounter format was demonstrated by regional stores (up 48%) due to continuing excellent performance of stores in Urals. Despite the fact that St. Petersburg remains a very competitive market, the Company’s soft discounters continued reporting positive traffic there with total LFL reaching 15%.

In the first quarter 2008, X5 Retail Group N.V. added net 62 stores, including 57 soft discounters, four supermarkets and one compact hypermarket (in Voronezh) with a total net selling space of 30.1 thousand sq. m. This takes into account 2.8 thousand sq.m. that were closed during the quarter (five soft discounters and one supermarket) and includes 28 stores purchased as a result Kama-Retail acquisition (9.3. thousand sq.m. in net selling space).

As a result, at 31 March 2008, X5 Retail Group N.V. operated 930 company-managed stores, consisting of 731 soft discounters, 183 supermarkets, 15 compact hypermarkets and one fullsize hypermarket store, with the total net selling space of 639.3 thousand sq. m. (please see Appendices IV and V for detailed information on store opening progress).

Tactical M&A Transactions & Franchises Buy-Out Update

In the first quarter 2008 X5 Retail Group has started the integration and rebranding of Korzinka and Strana Gerkulesia stores, which is expected to be completed in the second quarter for most of the discounters and in the third quarter for all supermarkets. As we have announced on 5 March 2008, X5 plans to rebrand its full size hypermarket in Lipetsk purchased within the Korzinka deal to Mercado Supercenter by 30 June 2008. In April 2008 X5 Group acquired 100% of the business and assets of Kama Retail company – a Pyaterochka franchisee in the Perm region. As a result, X5 bought out 28 soft discount stores in Perm and the Perm region with a net selling area of 9.3 thousand sq.m. for a total consideration of approximately USD 18 million, including debt. The total area of purchased stores is 19.9 thousand sq.m, out of which 1.9* thousand sq.m. are wholly owned. This was the second deal in the execution of the Group’s strategy of selective franchisee buy-out in strategically important regions.

Franchisee Store Operations

During the first quarter 2008 the Group’s franchisee store network was expanded by net 23 soft discounter stores. As of 31 March 2008, franchisees operated 711 stores across Russia and Kazakhstan in total, including 8 Perekrestok and 703 Pyaterochka stores. X5 Retail Group does not consolidate franchisee stores’ sales. The Group receives royalty payments from franchisees and reports them as other revenue.