Metro says market tough as profit slumps

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DUESSELDORF, Germany (Reuters) - Metro <MEOG.DE>, the world's No. 4 retailer, missed expectations for second quarter results as high food prices and the European debt crisis hit consumer sentiment and said its 2011 earnings target depended on economic improvements.

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"Although the economy has continued to recover, the ongoing concerns about the European debt crisis are having a significant impact on consumer confidence," it said in a statement on Tuesday.

The group, which runs cash & carries, hypermarkets, electricals shops and department stores, confirmed its target to grow earnings before interest, tax and special items by around 10 percent in 2011.

"Whether or not the company can meet its earnings targets also depends on the continued improvement of macroeconomic conditions and the ability to compensate procurement price increases," Metro said.

As reported last week, it said sales would now only be above 2010 levels, compared to previous forecasts for a 4 percent rise.

Europe's retailers are having a tough time as shoppers are squeezed by rising prices, subdued wages growth and government austerity measures.

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Carrefour <CARR.PA>, the region's biggest retailer, last month issued its fourth profit warning in less than a year.

Metro reported a 0.2 percent rise in second-quarter sales to 15.74 billion euros ($22.65 billion), while EBIT before special items dropped 8 percent to 306 million.

Analysts had on average been expecting sales of 15.85 billion euros and EBIT before special items of 327 million, according to a Reuters poll.

At its MediaMarkt-Saturn arm, Europe's largest electricals retailer, sales at stores open for over a year fell 5.2 percent in the second quarter.

It last week set out measures to improve the unit, including expansion into online sales, lower prices, cost cuts and acquisitions.

"I expect sales and earnings of Media-Saturn to appreciably pick up again in the second half of the year," Metro Chief Executive Eckhard Cordes said in a statement on Tuesday.

The best performance came from the Cash & Carry division, which saw second-quarter sales rise 1.8 percent on a like-for-like basis and profit up 6.9 percent helped by growth in Asia and eastern Europe, especially Russia.

(Reporting by Victoria Bryan)

($1=.6950 Euro)

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