Best bits: Carrefour faces another year of tough decisions
Carrefour could look to sell part or all of hard-discount chain Dia
"2010," Carrefour chief executive Lars Olofsson said last week, "was a year of contrasts." 2011, some analysts have suggested, will be as challenging for the world's second-largest retailer as the last 12 months have been.
Announcing Carrefour's annual sales figures, Olofsson admitted "heavy" one-off charges had "weighed" on the results. He insisted, however, that the French retail giant also enjoyed "several satisfying achievements". He said Carrefour had gained market share in France, had seen improvement in Belgium, in Poland and from its hard-discount chain Dia and Olofsson also maintained Carrefour's "transformation plan" was on track, pointing to cost savings of EUR500m (US$663.9m).
Carrefour's shares had taken a hit in the last quarter of 2010 after two profit warnings in two months and Thursday's sales announcement would have reassured some investors - for now at least. Carrefour's fourth-quarter sales were up over 5%, and, despite a further trim to its forecast for 2010 operating profit, the rise in sales led the retailer's shares to rise. However, questions are being asked about Carrefour's prospects in 2011 and, critically, about whether the retailer really is seeing the benefits of its cost-cutting.
Analyst Christopher Hogbin said Carrefour's "inability" to translate its "better-than-expected" sales in France and in Europe into profit suggests the "competitive environment is as challenging as ever". Hogbin also claimed Carrefour had only been able to "retain the benefit" of just 20% of its cost savings. He argued that Carrefour would have to be far more effective at keeping that benefit - the analyst said the retailer would have to hang on to around 50% of savings - to meet its 2013 profit targets. Given his claims on Carrefour's performance on that metric in 2010, Hogbin said he was "sceptical" the retailer could get up to that 50% level.
Towards the end of last year, speculation grew over what Carrefour could do to "realise value" from certain assets - notably hard-discount business Dia and its property unit. Over the weekend, that speculation resurfaced, with the Financial Times claiming a decision could be made before the summer. With activist investors like French billionaire Bernard Arnault present on the Carrefour board, and with concerns that Carrefour's cost cutting is not perhaps boosting profits to the necessary level, we could see the retailer face some tough choices in 2011.
Carrefour's 2010 sales numbers came at the end of a week marked by a flurry of trading updates from retailers on this side of the channel. The likes of Marks and Spencer, Sainsbury's and Tesco issued their Christmas results, figures that highlighted how well (or otherwise) they were coping with the tough trading environment.
While Tesco's results left some analysts cold, Sainsbury's was seen by many as the clear winner of the Christmas period. The retailer even managed to edge ahead of Wal-Mart's Asda in the battle for market share, although Sainsbury's chief executive Justin King preferred to focus on what he called the company's "best like-for-likes in the industry.
Notably, King also took time to warn suppliers about last week's other big talking point - commodity prices. With pressure on many a manufacturer's raw-material bill remaining high, suppliers will be looking for their retail customers to accept price increases. However, with consumer confidence remaining fragile, retailers are wary of pushing up prices and King said Sainsbury's suppliers would have to "work very hard" to justify price increases.
Suppliers always seek to deflect questions about the pressure they face from retailers over prices with the answer: it was always thus. However, current economic conditions mean that pressure is likely to have turned up a notch or two in the opening weeks of the year.
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