Department store chain Stockmann has posted smaller-than-expected profits. CEO Hannu Penttilä blames the slump on weak consumer sentiment in Finland and the decline of the Russian rouble. Stockmann's operating profit was 3.5 million euros in the second quarter, a fraction of the 30.1 million euro profit posted for the same period of last year.
It was also far less than the 13.4 million euro prediction by analysts interviewed by Reuters.
"The operating environment is unstable and the crisis in Ukraine has considerably increased political tensions globally," the company said, adding that trade sanctions could further undermine its Russian sales.
Between January and June, the retailer lost 40.3 million euros. Stockmann predicts that its turnover and profits for this year will both be lower than that in 2013.
Penttilä says that a cost-cutting programme begun last year will begin to bear fruit in 2015.
Established in 1862, Stockmann operates stores in 16 countries under several brand names.
A retreat from Russia?
Just under half of Stockmann's sales come from Finland, with Russia accounting for 16 percent. Domestic sales are also sensitive to Russia's economy, though, as tourists are frequent shoppers, especially at the firm's flagship store in central Helsinki.
Analysts say Stockmann may decide to cut back on operations in Russia when it draws up a new strategy later this year.
"I would not be surprised if they were to pull out of the Russian department store business," says Sauli Vilén, an analyst at the Helsinki-based Inderes. "But even that would not solve the core of the problem; they have to reinvent the department store business."
In addition to the department stores, Stockmann operates the Seppälä and Lindex apparel chains, which also have branches in Russia and the Baltic region. Seppälä, already deeply in the red, made a further operating loss of 5.5 million euros on sales of 23.6 million in the second quarter. Vilén suggests that Stockmann may scrap the 84-year-old Seppälä brand, closing some stores and rebranding others as Lindex outlets.
