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The European Top 20 Retailers - Company Benchmarking Analysis
World Market Intelligence, Jan 2010, Pages: 246
The 'Company Benchmarking: Top 20 European Retailers' report compares the financial and operational strength of the top 20 European retail companies. The benchmarking is based on key parameters and ratio that explain where a particular company stands against its peers. It should however be noted that as ratios or parameters on a standalone basis do not give the full picture, the main objective of this report is to provide a “likely” situation and not a deterministic one.
This report compares and analyzes the top 20 retail companies in Europe, taking into consideration the diverse financial and operational parameters. It also captures detailed business and strategic analysis at individual company level and provides rankings that explain where a particular company stands against its peers. Carrefour S.A. topped the European Retailers’ chart with revenue of US$129.8 billion followed by Metro AG. A striking gap exists among top five European players, as Raylle SA and Casino Guichard-Perrachon, the fourth and fifth largest retailers respectively, generated only one third of the total revenues of that of Carrefour in FY08. In terms of operational efficiency, Tesco Plc was way ahead of Carrefour and Metro AG with a 5.9% margin. However companies with lower rankings; H & M Hennes & Mauritz AB and LVMH Moet Hennessy outnumbered all other larger peers with double-digit operational margins in FY08. It is interesting to note that specialist retailers like H & M Hennes & Mauritz AB (Clothing & accessories specialist) and LVMH Moet (Luxury goods specialist) realized better margin than general retailers like Carrefour, Metro AG or Tesco.
The operational cash flow growth was best for BayWa in FY08. The outlet productivity of PPR and Wm Morrison was outstanding with 82.8% and 70.0% respectively. Metro AG and J Sainsbury also performed well under this parameter. The area productivity was best for Wm Morrison, followed by PPR and J Sainsbury. H & M Hennes & Mauritz AB achieved the highest net margin of 17.0%, followed by LVMH Moet with 11.8%. Among the top five players, Tesco reported the highest net income as well as net margin. It achieved a margin of 4.0%, whereas Carrefour and Casino Guichard, both the immediate followers managed only 1.7%. Here also, we find the continuation of trend; which implies specialist retailers to earn better margin over general retailers. In terms of efficient utilization of capital and assets, both H & M Hennes & Mauritz AB topped the list, providing almost 50.0% returns on capital employed and 30% returns on its assets. Marks and Spencer Group was the next best performer, considering both the parameters together. The top five companies spent more on capital expenditure, accounting for almost 60% of the total capex of top 20 players, though the spending has been disproportionate to their respective operating incomes. Tesco spent profusely on different acquisitions and investments in new development schemes in the UK and China. Players at the lower rung, like Marks and Spencer Group and Associated British Foods also made higher investments (capex as percentage of revenue) compared to their larger peers. Marks and Spencer however applied drastic cut to its capex over the last two years.
Though the capital expenditure increased over the years for most of the companies, in FY08 the capex growth was marginal or sometimes negative. The quick ratio (excluding inventory) of the European retailers varied within a band of 0.3 - 0.9, barring only H & M Hennes & Mauritz AB, which has extraordinary very high ratio of 2.6. Huge amount of cash and equivalent magnifies the ratio for the company. In terms of collection efficiency, J Sainsbury had the lowest ratio, followed closely by Kingfisher and Tesco.
Tesco Plc and LVMH Moet occupied the top two slots, with highest shareholders’ fund in FY08. Largest European retailer, Carrefour managed the third place only, followed by PPR. In terms of debt-to-equity, H & M Hennes & Mauritz AB and Kesko Corp., have the lowest ratio; whereas Raylle SA has an alarming ratio of 5. The P/E ratio of European companies ranged between 2 and 23, while in some cases the ratio was in negative due to negative earnings in FY08. On the basis of the Heat Chart of top 20 retailers for FY08, five companies which achieved the above-average score are Wm Morrison, LVMH Moet, Associated British Foods, Kesko Corp., and H & M Hennes & Mauritz AB. Interestingly, none of the top five revenue earners come under top performer’s list. It is also common for most retailers to obtain impressive score in terms of activity ratios; and performing inadequately at the liquidity measure, as they usually do not carry high account receivables.
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