Metro reports sales improvement in Germany

Metro reported a bigger-than-expected improvement in quarterly profitability at its Media-Saturn consumer electronics chain on Wednesday, helped by cost cuts as the German retailer prepares to split the business from its food operations.

Metro said in March it wanted to separate its wholesale and food business from its consumer electronics arm by mid-2017 to help each focus and grow faster.

Chief Executive Olaf Koch told a conference call for analysts that preparations for the demerger were on track, with no major issues identified since the March announcement, but he declined to give details.

Metro reported quarterly earnings before interest and tax (EBIT), before special items, of 11 million euros ($12.5 million), on sales down 0.9 percent to 13.57 billion, ahead of analysts' average forecast for a loss of 6 million on sales of 13.54 billion.

That was largely driven by an improvement in profitability at Media-Saturn, which Metro said was due to cost cuts as well as positive contributions from commissions and suppliers.

Metro shares were down 0.1 percent at 0832 GMT, compared with a 0.7 percent weaker European retail sector.

"A solid set of results for Metro and on track to achieve full year guidance. The improvement seen at Media-Saturn is encouraging," said Bernstein analyst Bruno Monteyne.

Metro flagged a 35 percent jump in online sales at Media Markt and Saturn as well as a 50 percent increase in service sales after it bought repair company RTS last year.

Media Saturn was initially slow to embrace ecommerce due to a protracted dispute between Metro and the chain's billionaire founder Erich Kellerhals.

But it is now doing a better job of linking its stores with ecommerce, with 40 percent of goods ordered online collected in a store, and it is also seeking to offer more services such as repairs to differentiate itself from website-only players.

Meanwhile, the cash and carry business, which Metro plans to spin out and list separately, took another hit from the weak rouble, but Koch said there were encouraging signs consumer demand in Russia had turned positive.

Metro also made some progress at reining in losses at its struggling Real hypermarket chain after it closed unprofitable stores, trimmed costs and secured better purchasing conditions.

Metro reiterated the group's forecast for the 2015/16 fiscal year, which foresees a slight rise in overall sales and EBIT, excluding special items, despite what it describes as a "persistently challenging economic environment".