Carrefour buyback sends "mixed message" - analyst

Carrefour buyback sends "mixed message" - analyst

Shares in French retail giant Carrefour rose today (16 April) after the company booked an increase in first-quarter sales and announced plans for its first share buyback for three years.

The world's second-largest retailer beat consensus analyst expectations yesterday evening, when it posted a 5.5% jump in first-quarter sales, which rose to EUR23.96bn (US$32,5bn).

The company said that gains were driven by expansion in its “growth markets” of China and Latin America, where comparable sales rose 4.5% and 10.1% respectively.

In European countries excluding France, Carrefour was able to stem downward sales trends, as sales came in flat compared to a 4% decline in the fourth quarter of last year. Like-for-like sales improved in Spain and Italy but the company's Belgian business continued to struggle and like-for-likes in that country were hit by strike action during the period.

Carrefour insisted that it had been able to gain market share in France by 80 basis points. In total, French sales excluding petrol were down 0.5% and the group said that its domestic smaller format and supermarket units booked a strong performance.

Carrefour also announced that ts board has decided to approve a buyback for up to 6% of its share capital, news which helped send shares in the company up 2.53%, climbing to EUR38.83 at 1.30 pm (GMT) today.

According to Sanford Bernstein analysts, the buyback should increase EPS by 4%.

Nevertheless, the analysts suggested that the move gives a “mixed message” and places a question mark over Carrefour's long-term growth prospects.

“On the one hand, a debt funded buy-back demonstrates management's confidence that the "En Avant" transformation program will improve Carrefour's cash flow generation. On the other hand, returning cash to shareholders suggests Carrefour does not see sufficiently attractive opportunities to put its capital to work,” the analysts warn.

“This may be a temporary issue, while management focuses on improving performance in its core mature markets. If not, it brings into question Carrefour's sustainable longer term growth rate.”