Portugal retailer Sonae's profit drops 21 pct, beats forecast

Portugal's largest retailer, Sonae SGPS, posted on Thursday a smaller-than-expected 21 percent drop in first-half net profit, pressured by indirect results, while sales rose even as profitability slipped due to heavy discounts.

Net profit fell to 77 million euros ($34.2 million), still beating the average forecast by analysts of 53 million euros.

Sonae said the mark-to-market valuation of its decreased stake in telecoms firm NOS weighed on the profits compared to a year ago as did a sharply smaller indirect contribution from its property division Sonae Sierra. But its overall direct profit rose 19 percent to 66 million euros.

Total sales rose over 4 percent to nearly 2.43 billion euros, while analysts expected 2.41 billion in sales.

The conglomerate that operates Continente hypermarkets, consumer electronics stores Worten and SportZone outlets of sporting goods, among other brands, said that its main revenue engine Continente expanded its market share in the period.

But sales rose at the cost of profitability as competitors have to offer discounts, contributing to food deflation.

The company's underlying earnings before interest, taxes, depreciation and amortization (EBITDA) fell over 15 percent to 111 million euros, while the underlying EBITDA margin, which measures operating profitability mainly in retail, dropped 1.1 percentage points from a year earlier to 4.6 percent.

Nevertheless, the margin improved from 3.8 percent reported in the first quarter.

The conglomerate's overall EBITDA was steady at 190 million euros in the first half and the overall margin slipped to 7.8 percent from 8.2 percent a year earlier.