Kaubamaja's profits far below expectations

  • 2008-11-19
  • By Matt Withers

RUNNING DRY: The large department store chain said that profits fell by more than 50 percent in the third quarter, a huge blow following predictions that the company could be succeeding despite the crisis.

TALLINN - The Tallinna Kaubamaja Group has announced that profits for the first nine months are down 46 percent year-on-year, undermining the retailer's previous optimism over sales successes.
The losses were particularly steep in the third quarter, when profits fell 52 percent year-on-year to 53.5 million kroons (3.42 million euros).

Only last month the long-established department store chain announced that unaudited revenues for the first three quarters of the year were up 13 percent over the same period last year, reaching 4.7 billion kroons.
The company's highly publicized announcement set the impression that the economic downturn was not hampering sales targets, indicating that Kaubamaja was confident about producing respectable yearly results despite skepticism from its major rival Stockmann.
But with profits for January to September dipping 46 percent year-on-year to 151.7 million kroons, that optimism now seems unfounded and appears to be an underestimation of the impact of the credit crunch and economic recession.

In accounting for the loss of profit, the company has said that the economic downturn has had a marked effect on consumer behavior, with obvious consequences for the retail market. However, the company has also said it is still out-performing its market competitors and that the company's expansion is another factor contributing to profit loss.

"In terms of growth in turnover, supermarkets and department stores of the group exceeded the average growth figures of the market, while in terms of profit the fall was due to the changed economic situation and extension of the company," said Raul Puusepp, chairman of the board at Tallinna Kaubamaja Group.
The chairman went on to express the view that while this year's intense expansion of operations has been costly, it presents the company with an ideal opportunity to claw back profits during the busy Christmas season.

"As the past year has been the most active year of expansion of the group, it has inevitably influenced the earlier profitability figures. On the other hand, the new premises put into operation permit us to confidently face the imminent Christmas season," Puusepp said.
The bulk of the company's losses have come from their Selver super and hypermarkets, which pulled in 82.5 million less than last year with profits of 73.7 million kroons. Selver did, however, report a 14 percent increase in revenue, and as such the company has said that reduced takings have been attributed to this year's opening of seven new stores and the renovation of four existing outlets.
Over the course of the past year, a total of 18,437 square meters of new commercial floor area was added to the Selver chain.

The company's flagship shopping centers in Tartu and Tallinn together brought in 10.1 million kroons less than last year, while the group's car dealership reported a 2.4 million kroon reduction on last year's takings.