In the second quarter of the 2007/2008 financial year, the Arcandor Group generated a leap in earnings, improving adjusted EBITDA of the operating segments by 70% or €126 million to minus €53 million. Posting a loss for the period between January 1 and March 31 is usual for the segments of Arcandor and due solely to seasonal factors. On a cumulated basis after six months of the 2007/2008 financial year, adjusted EBITDA of the operating segments totaled €151 million. In comparison to the previous year, this represents an improvement of €144 million.

The trend reversal within the Arcandor Group is becoming increasingly obvious from quarter to quarter. From a group with a focus on mail order and over-the-counter retail in Germany, within three years an international company has emerged. With tourism, home shopping, luxury, trading up, e-commerce and rapidly growing international business, it is focused on sales and earnings growth.

“The figures for the second quarter of the 2007/2008 financial year are good and give cause for further optimism. After half of the current financial year, we can already say with confidence that in the 2007/2008 financial year the Group will generate an EBITDA never before achieved in all of its history. In the 2007/2008 financial year, we plan a considerable year-on-year improvement in earnings and an adjusted EBITDA of the operating segments exceeding €800 million,” stated Thomas Middelhoff, Chairman of the Management Board, when presenting the interim report in Düsseldorf on Thursday. “At the same time, the figures show we are on track for achieving our objectives for the 2008/2009 financial year.”

As scheduled, earnings have grown more quickly than sales. This shows the success of the targeted discontinuation of unprofitable sales, the concentration on higher margin segments and rigorous cost management. In the second quarter, adjusted Group sales of the operating segments achieved €4.1 billion (€3.95 billion in the previous year), equivalent to growth of 3.7%. On an accumulated basis in the first half year of 2007/2008, adjusted sales of the Arcandor operating segments increased by 0.3% to €8.8 billion.

The Thomas Cook Group, with a share of almost 60% of annual sales the largest operating segment in the Arcandor Group, achieved adjusted EBITDA of minus €32 million in the second quarter (minus €121 million in the previous year). This is a year-on-year upturn of 73%. In the process, Thomas Cook has already improved the EBITDA in the first two quarters of the current financial year by €149 million against the previous year. The increase is due largely to higher margins and successful synergy management in the context of integrating Thomas Cook and MyTravel.

At €2.1 billion in the second quarter, sales in the tourism group were at the level of the previous year. To be taken account of here is that by targeted adjustment of capacity in its core markets, Thomas Cook deliberately relinquished unprofitable sales. On the basis of this effective capacity control, the management succeeded in improving the average prices, margins and the return on sales. On a cumulative basis after six months, sales reached €4.2 billion. As expected this represents a 0.8% decline.

After a successful Winter season, the 2008 Summer business has also been very strong so far on the core markets. A further positive factor is that, capacity still to be sold for the Summer season is considerably below the level of the previous year, particularly in Great Britain and Germany. For Condor, business in the second quarter was also positive. In the first half of the year, the seat load factor was up 3% year-on-year for the Winter season and by 1% for the Summer season. The Thomas Cook Group regards itself as having a strong market position with a robust business trend. In view of lower capacity and higher prices and the flexible business model (asset light) Thomas Cook is able to balance the impact of variations in demand. The management remains confident that the objectives for the current financial year and the following years will be achieved.

With sales growth of 14.5% in the second quarter, Primondo – the home shopping segment of Arcandor – impressively demonstrated its potential, developing better than the competition. In the second quarter, adjusted sales were €1.1 billion (€0.95 billion in the previous year). The international business was particularly pleasing. In Primondo’s growth market of Central and Eastern Europe, sales growth of 44% was achieved, with the business improving by 63% in Russia. Specialty mail order moved forward by an impressive 13%, driven by the successful realignment of the portfolio. The home shopping channel, HSE24, continues to post double-digit percentage growth, steadily expanding its market share. Stabilization of Quelle in Germany is ongoing.

As planned, declining sales in the classical catalogue business is increasingly being compensated for with high growth in e-commerce. On a cumulative basis in the first half year of the 2007/2008 financial year, Primondo increased adjusted sales by 7.9% to €2.3 billion.

The pleasing sales trend is also reflected in a considerable earnings upturn. In the second quarter of the 2007/08 financial year, Primondo posted a positive adjusted EBITDA for the first time in years. It amounts to plus €2 million, after minus €32 million in the previous year, representing earnings growth of €34 million. On a six-month basis, Primondo has already improved EBITDA by €36 million. A positive result is planned for each further quarter of the current financial year.

The Karstadt department stores rigorously continued their realignment in the reporting period. The appearance of the stores improved considerably; the Karstadt profile was further sharpened. Karstadt has achieved a strong improvement against the previous quarter and is again in line, clearly ahead of the competition. Adjusted sales were €0.95 billion (€0.94 billion in the previous year), representing a slight increase of 0.7%. The positive sales trend becomes all the more apparent in view of the fact that as part of the transition to the new business model, Karstadt transferred sales in its non-core segments to specialized partners which are market leaders in their area. Higher sales were achieved, despite conversions and temporary store closures. In the second quarter, Karstadt improved its results (adjusted EBITDA) by 13.6% to minus €23 million (minus €27 million in the previous year). A key positive factor here was the higher gross margin as a result of trading up. It should be noted that for seasonal reasons, Karstadt posts a loss between January and March every year. On a cumulative basis in the first half year of 2007/2008, Karstadt achieved a clearly positive result. Adjusted EBITDA totaled €113.2 million.

“Arcandor AG is committed to increasing value and has the objective of being No. 1 or No. 2 is all its core business segments," declared Middelhoff. In addition to the listed tourism segment, the target is to achieve capital market viability for Karstadt and Primondo as well. Today the Group has a good positioning. “We are currently working on a series of strategic projects with potential for a high level of improved value.”

“After we stated an earnings guidance for adjusted EBITDA exceeding €800 million for the current financial year, we have substantiated optimism in respect to meeting the objectives in the 2008/2009 financial year. On sales of at least €23 billion, it is planned to generate an EBITDA of at least €1.3 billion. This should be done with the current portfolio. It does not take into account further earnings potential which may result from strategic options,” stated Middelhoff.