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Carrefour warns on 2011 profit as Europe struggles

Carrefour warns on 2011 profit as Europe struggles
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First Published: Wed, Aug 31 2011. 05 52 PM IST
Updated: Wed, Aug 31 2011. 05 52 PM IST
Paris: Carrefour, Europe’s No 1 retailer, warned 2011 profits would slump 15% as it cuts prices in a bid to reverse falling market share and tackle an increasingly tough economic environment.
Carrefour said it was downsizing its core Planet hypermarket revamp as it continued to face headwinds in Southern Europe, notably in Greece and Italy, and added that high commodity prices put at risk its purchasing gains goals.
Shares in the French group, which has spooked investors with four profit warnings in less than a year, dropped 4% on Wednesday after it reported an unexpected first-half net loss, hit by €884 million of one-off charges, mainly linked to writedowns for its Italian business.
“We are biting the bullet in 2011 and rebuilding momentum in 2012 to deliver long-term sustainable profitable growth,” chief executive Lars Olofsson told a news conference.
Meanwhile, its new head of France, Noel Prioux, unveiled a new stimulus plan for France, which will focus more on price cuts than on costly promotions, hand back more responsibility to hypermarket managers and accelerate expansion of Carrefour-branded products and e-commerce.
“Yet another one (profit warning) and yet another plan,” said JP Morgan Cazenove analysts, referring to Carrefour’s repeated attempts to reinvent itself in recent years.
“Given Carrefour’s history on lack of delivery on its guidance, then a more aggressive stance could be taken by the market,” RBS analyst Justin Scarborough added, predicting even deeper cuts in 2011 profit forecasts.
A string of European consumer-related companies including Ahold and Heineken have missed earnings forecasts recently as shoppers have cut spending amid rising prices and austerity measures.
Carrefour, the world’s No.2 retailer behind US group Wal-Mart, has conceded it has also made mistakes, such as raising prices in its main French market above rivals such as E Leclerc and Intermarche.
“We tried to do too much too quickly,” Olofsson said.
The group, with more than 9,500 stores in 32 countries, reported a well-flagged 22% drop in first-half current operating profit to €772 million.
It pledged to improve its competitive position, but also indicated this would hit earnings in the short term.
“We have taken the decision to favour sustainable value creation over short-term gains,” Olofsson said, adding the group would prioritise price cuts over promotions.
At the time of its previous profit warnings in July, Carrefour had said it still hoped to grow full-year operating profit, though analysts had cut their forecasts to around €2.3-2.4 billion, or a decline of about 11-15%.
Olofsson is under pressure after launching a three-year turnaround plan in June 2009 that has so far shown few lasting benefits.
The news conference yielded more disappointment on that front.
Carrefour said a goal to achieve cumulated cost savings of €1.9 billion by 2012 under the three-year plan was intact, having achieved €236 million in the first half alone.
But price competition and high commodity prices wiped out purchasing savings in the first half, putting Carrefour’s goal of making cumulative purchasing gains of €850 million at risk.
Carrefour was also reducing capex in Greece and Italy amid a tough economic climate, downsizing to 464 an initial target to have revamped 503 European hypermarkets by 2013.
Carrefour’s shares have plunged 40% this year, hitting a more than 10-year low of €16.675 this month.
However, Olofsson appears to retain the support of key shareholder Blue Capital, an alliance of luxury tycoon Bernard Arnault and US group Colony Capital. In June he was handed the role of chairman to add to his position as CEO.
Faced with gloomy prospects in Europe, Carrefour reiterated it was keen to accelerate its expansion in fast-growing emerging markets, notably China and Latin America.
Analysts have been keen for Olofsson to spell out his plans for Carrefour’s emerging market businesses after a failed attempt last month to merge its Brazilian operations with that of a local rival.
Olofsson reiterated that its Brazilian operations, which contribute 14% of group revenue, were not for sale and that it did not need partners in Brazil, where it is the top food retailer.
Olofsson said, however, that Carrefour was reviewing all opportunities to grow in Brazil, the group’s second-largest market after France.
First-half underlying operating profits dropped 40% in France, where Carrefour makes over 40% of its sales, and were down 33% elsewhere in Europe. They were up 27% in Latin America and 11% in Asia.
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First Published: Wed, Aug 31 2011. 05 52 PM IST