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Karstadt department store in Dortmund

BERLIN — Despite dramatic losses in its Karstadt department store division, the troubled Arcandor AG retail and travel group reported a 19.4 percent increase in adjusted group earnings before interest, taxes, depreciation and amortization for the year ended Sept. 30. Adjusted group sales for the period slipped 1.1 percent.

This story first appeared in the December 16, 2008 issue of WWD.  Subscribe Today.

EBITDA for the Thomas Cook Travel, Primondo catalogue-home shopping and the Karstadt department store divisions reached 820.2 million euros, or $1.23 billion, on group sales of 19.91 billion euros, or $29.95 billion. Bank and other financial debt totaled 802 billion euros, or $1.21 billion. All dollar figures are converted from the euro at an average exchange rate for the period.

Both earnings and sales figures were adjusted to reflect “special factors, divestments and restructuring expenses in EBITDA,” the group said. A change in the financial year-end date also required an adjustment in the reported figures.

The 127-door Karstadt division, comprised of four Karstadt Premium units, 87 Karstadt department stores, 28 Karstadt Sport stores and eight Project branches saw operative losses of 4.2 million euros, or $6.3 million, from profits of 147.7 million euros, or $222.1 million. Sales for the division slipped 3.4 percent to 4.09 billion euros, or $6.16 billion. Arcandor attributed the Karstadt division’s loss to “excessively high costs (especially in administration) and a failed discounting policy simultaneously combined with a modest decline in adjusted turnover.” As for falling sales, the group noted poor Christmas business in 2007 and a depressed consumer climate in 2008.

The Karstadt division currently contributes 21 percent of group sales. The previously challenged Primondo catalogue division, with a 22 percent share of group sales, achieved a turnaround, powered by increased activities in home shopping, e-commerce and specialty mail order. Adjusted EBITDA surged to 89.7 million euros, or $134.9 million, from 4.7 million euros, or $7.1 million, the year previously, while sales rose 6.7 percent to 4.31 billion euros, or $6.48 billion.

The Thomas Cook travel division remains Arcandor’s strong card, contributing 90 percent of the group’s operating profit. EBITDA jumped 37 percent, while turnover slipped 3.2 percent to 11.38 billion euros, or $17.11 billion.

As reported, Arcandor is in the midst of top management changes. Current chief executive officer Thomas Middelhoff will be replaced by Karl-Gerhard Eick on March 1, and Rüdiger Andreas Günther was named the new chief financial officer last month. The department store division’s new head as of August, Stefan Herzberg, was appointed to the management board last month, and the Karstadt division’s director of purchasing is leaving the company at yearend. The supervisory board also got a new chairman in mid-November, Friedrich Carl Janssen, reflecting the group’s new shareholder structure. Private bank Sal. Oppenheim, of which Janssen is a personally liable partner, now holds the largest Arcandor stake of 30 percent.

Due to these changes, analysts are shying from making projections for the 2008-09 fiscal year. Arcandor, however, said it was “well-prepared” for a difficult year ahead, and confirmed its forecast of adjusted operating EBIDTA of more than 1.1 billion euros, or about $1.5 billion at current exchange rates. This represents an increase of 34 percent, but as Middelhoff stated, the forecast can only be achieved if “the extent of the financial crisis does not increase significantly and the recession does not exceed the forecast degree.”

Christmas business at Karstadt has been satisfactory to date, with adjusted sales at last year’s levels, the company said. Declines in October and November, however, impacted Primondo’s sales performance, with current turnover below last year.