X5 To Weather Near-Term Headwinds Relatively Well

Russian mass grocery retail (MGR) operator X5 Retail Group's recent financial showing is reflective of an increasingly challenging demand environment in the country. Although X5 reported a 32% growth in its overall sales for the year ending December 2011, the retailer's like-for-like sales in Q411 declined by 2% in local currency terms, bearing out the faltering strength of domestic demand. While our below-consensus macroeconomic outlook for Russia suggests growing caution in X5's near-term prospects, X5's aggressive expansion plans and its discount retail strength nonetheless provide a strong cause for optimism, in our view.

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