In a tumultuous week for Europe’s largest retailer, robust full year results failed to mask internal rumblings at Carrefour. On Thursday (8 March) the French retail group posted a 3.3% rise in profits, excluding exceptional items, just one day after chairman Luc Vandevelder was essentially given his marching orders and France’s richest man bought up a big stake in the company.
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Carrefour’s results saw income leap to EUR2.27bn (US$3bn), up from EUR1.44bn last year on the back of a EUR412m one-off gain from the sale of the company’s Korean business. Excluding exceptional items, income rose more modestly to EUR1.86bn.
Despite gains, issues with the retailer’s performance in its home market persisted: Carrefour admitted that the French trading environment “remains difficult”.
“The food retail industry in mature European markets is characterised by low growth and deflation,” the company said in its statement, adding that it will “overhaul our commercial model” and offer a wider range of products. Clearly Carrefour is attempting to get its offer right, but in France at least it doesn’t seem to have succeeded yet.
And with share value plummeting in recent years, it is no secret that stakeholders in the world’s second largest retailer are impatient to see results. This tension is beginning to come to the fore, with a chaotic 24-hours preceding the results release.
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By GlobalDataAfter a rift developed between former Marks & Spencer boss Vandevelde and Carrefour’s largest stakeholder the Halley Family, which owns a 13% stake and controls just over 20% of the voting rights, Vandevelde quit as chairman of the group to be replaced by Robert Halley.
At the same time, it emerged that French billionaire Bernard Arnold and US private equity group Colony Capital had built up a 9.8% stake in the business, valued at around EUR4bn. With rumours circulating that the Halley family could be looking to offload its stake in the retailer, the news that France’s richest man has entered the fray certainly has the potential to disturb the balance of power at Carrefour.
Add to these muddied waters suggestions that Carrefour could be considering unlocking the value of its considerable property portfolio and/or facing a private equity takeover bid and the only thing that seems clear is that Carrefour’s future is uncertain. While a buyout in the near term is a highly dubious prospect, the investment from Colony Capital – a real estate investment specialist – certainly does hint at the possibility that some of the company’s property assets, valued at between EUR15-20bn, could be sold off.
If Carrefour were to take this route, short-term returns would increase and shareholders would be pacified. However, such a move could prove a dangerous threat to the delicate recovery currently being overseen by CEO Jose Luis Duran.
Carrefour has followed a strategy of growing sales and market share at the cost of margins through low prices, store diversification and conversion, an increased emphasis on private label and the move into non-food. If it were to sacrifice a measure of control over its store portfolio and open itself up to increased costs in the future, the retailer could be jeopardising its recovery strategy, particularly in its largest market – France.
