Supermarkets Day pass for what is perhaps the worst moment in its history. The low-priced distribution chain has fallen on the stock market this week more than half of its value and may not meet the minimum capitalization criteria to continue in the Ibex 35. A cascade of circumstances that were not properly explained by the company precipitated that only on Monday lost more than 500 million capitalization. Given the perplexity of some analysts and the "already intuited" of others, the changes happened: the president, Ana María Llopis, announced his resignation and its corporate director, Amando Sánchez, was suspended from employment following the wake of the sudden dismissal of the CEO, Ricardo Currás, this summer.
The company admitted on Monday what the JP Morgan bank already suspected (and expressed in a devastating report): in the best of cases, this year will achieve an operating result of between 350 and 400 million, which means a cut in between 29% and 38% over that of 2017. The scant explanation for this collapse, – "the fall in sales and the increase in operating expenses" – added more concern to the market. The lack of confidence has led investors to sell with disabilities before continuing to see how a value deteriorates that, in addition, has been suspended the dividend and is harassed by investors who bet that it will lower in price. As if that were not enough, the group acknowledged, without explaining the reason, that this year it will have a "patrimonial deterioration" of about 70 million, so it will have to reformulate the accounts, something that also did last year.
"It's a company that has been milked; It has lost competitiveness; it is not well known how it is positioned; its own brand is not competitive against Hacendado (Mercadona), or against Lidl, "lists an analyst in the sector who knows the company. He says it has been milked by a combination of errors in business management and lack of market vision. It speaks of a strategy based only on the growth of turnover (in 2016 reached its ceiling of 8,669 million, and fell to 8,620 in 2017) without addressing one of the most important indicators in distribution: the profitability of the square meter of commercial surface Dia, with about 3,000 euros in sales for each meter that it has in its supermarkets, presents one of the worst ratios of the large Spanish distribution, compared to the more than 9,000 euros that Mercadona gets or the more than 7,000 from Carrefour. Is, summarizes the analyst, a group "managed in a short-term manner", which has been approaching the precipice with the abuse of tools such as factoring (immediate collection of invoices in exchange for a commission for the transfer of its management to another company) they can create a debt problem; or feeding profit expectations that have been proven unsuccessful.
"Their main focus of risk is Spain and Portugal, where they have a lot of competition in the market per se. In addition, they are paying for the breakdown of their agreement with Eroski and their position to negotiate with suppliers has weakened, "reflects Ana Gomez, Renta 4 analyst." To that is added that the presentation of their strategic plan may be delayed, "he adds. The most internationalized chain in the country also sums up failures in several markets: this year it suffers in Argentina due to the devaluation of the currency and has been damaged by the transporters' strike in Brazil. Previously its expansion in China ended with the sale of its 378 supermarkets in Shanghai. In France, it managed to sell 800 Carrefour stores in 2014, but the French company confessed that it was a ruin. In January of this year, they presented a plan to get rid of 243 of those outlets and they did not succeed. Dia sums up problems with the franchisees who say they are harassed by the aggressive commercial policy of the company and that, although they have not won their lawsuits in the courts, they have caused significant damage to the image of the brand.
In a note to investors, Arancha Piñeiro, of Banco Sabadell, analyzed this week that, "now more than ever, a strong message from the company will be necessary for the market to once again give credibility to value". But that message did not reach the market nor its 42,600 employees. "They told us to be calm, in the stores it is selling well, and that they would meet us. In November they will present the strategic plan ", summarizes Belén González, delegate of UGT in the committee. Ángeles Rodríguez, head of the Comisiones Obreras Trade Federation, admitted his concern about the ups and downs of the company on the stock exchange, but assures that the workforce "has not received any explanations" beyond what Dia has given to the CNMV. And the CNMV does not inform, by supervision policy, if these have been sufficient or if it has required more data to the company.
Problem of formats?
Dia has a problem that is long: it is the third operator in the country with a market share of 6% (according to Alimarket), but its commercial formats have not adapted to the speed demanded by the market, although it has many and varied . They have the Dia Market (between 400 and 700 meters of store), La Plaza (300-1,000 meters), the large Maxi or Max Discount Day, the urban City Dia, the franchises called Every Day or specific locations for other countries such as Mais Perto or Mini Preço in Portugal. They range from 160 square meters with packaged products and small frozen islands to more than 1,000 with a section of perishables, but many stores need an investment and continue to be associated with a model of great austerity that is no longer so demanding. The warning that their profit deteriorates should, analysts believe, promote proactive measures to make their offer more competitive, but that would require, a priori, a capital increase that is to come, as their debt grows (it was 1,200 million in the month of June) and its more complicated maturities are approaching.
The future of the chain It is decided this week by Russian businessman Mikhail Fridman, majority shareholder of the group. On July 28, 2017, its business group, which controls a popular distribution chain in its country with 13,685 stores, entered the Spanish firm with 10%. That day the shares ended up trading at six euros. In January 2018 it increased its participation to 25%, and on September 28 it rounded up its portfolio to 29%, when the securities had already fallen to two euros. One step away from launching an offer for the entire capital, something that would have to do if it exceeds 30%, Fridman could try the operation at the end of next January to take advantage of the low prices of the quote. Meanwhile, his strong man, Stephan DuCharme, has assumed the functions of president.
In the market, the assessment of Friedman's strategy is mixed. Some analysts think that he has trusted too much, that he thought he would soon be profitable because he knows the business. Others, however, speak of an excess of confidence about Dia's health.
The Russian tycoon Mikhail Fridman, a discreet man who lives in London, is also one of the greatest fortunes in the world according to the magazine Forbes. The majority shareholder of Dia is the CEO of Alpha Bank, one of the most important banks in his country. He is the founder of Alpha Group and continues to have a share of more than 30% in the bank. In addition, he has other businesses. One of the most popular is called X5, the largest retail group in Russia, with several chains: Pyaterochka, Karusel and Perekrestok. Of its brands, Pyaterochka is the most important, and resembles the Spanish Dia in its strategy of offering low prices, a large range of white label and an austere product layout. Although lately he has invested in the local renovations (most of them without windows to the outside) and takes more and more care of the presentation.
Pyaterochka it has also been the fastest growing chain in Russia in recent years (only 1,500 new stores opened in 2015). Last year he had an income of about 250,000 million rubles per quarter (about 3,318 million in change). The Fridman company manages 13,685 stores, including 12,822 Pyaterochka stores, 712 Perekrestok supermarkets, 92 Karusel hypermarkets and 59 Express stores.