Carrefour is shaking up its Belgian, Italian and French businesses

Carrefour is shaking up its Belgian, Italian and French businesses

Shares in Carrefour gained today (7 April), as the retail giant’s stock outperformed the French market on rumours that the company will sell its discount chain in Portugal. However, Katy Humphries cautions, any plans to exit Portugal are a small step on Carrefour’s long road to recovery.

Carrefour shares have performed strongly today as the market has responded positively to rumours that the retailer is gearing up to sell its Minipreco discount chain in Portugal.

Shares in the world’s second largest retailer rose by 1.68% at 2pm on the Paris bourse, climbing to EUR37.13 and outperforming the sluggish French market.

The positive market sentiment follows a report in the early edition of French newspaper Le Figaro, which suggests that it is preparing to launch the sale process of its 524 Minipreco stores and exit the Portuguese market.

While the company has declined to comment on the rumours, the move would be in-line with its three-year transformation strategy.

In an effort to stem its haemorrhaging profits, Carrefour has said that it will narrow its focus, concentrating its efforts on improving the performance of its European businesses, with emphasis placed on France, Belgium, Italy and Spain. Meanwhile, the company will look to emerging markets such as China and Latin America to drive top-line growth.

Having indicated that the company is evaluating disposals, particularly of businesses where it does not see a good growth potential, Carrefour’s non-core Portuguese operations would seem a likely candidate for the chop.

Indeed, the company already sold its namesake Carrefour stores in the country - consisting of 12 hypermarkets and eight petrol stations and forecourts - for EUR662m (US$883.6m) in 2007.

Carrefour’s Portuguese operations have - like most of its European businesses  - witnessed a slow decline in sales of late. Last year, Minipreco generated revenues of EUR915m, down 0.9% from 2008 and 6.8% on a same-store basis.

According to French brokerage CM-CIC Securities, Carrefour could expect to net 12.5 times 2009 operating income for the deal, or around EUR440m.

“A disposal, which would allow Carrefour to make more strategic tactical investments, would be a good thing,” the analysts write.

While any proceeds from a potential sale would be a little more meaningful than pocket change, even for the world’s second-largest retailer, the analysts acknowledge that given Carrefour’s scale the sale remains of “secondary importance”.

To put it simply, Carrefour has far bigger fish to fry in its attempt to turn around its businesses in Europe.

The group is facing significant opposition to its plans to revitalise its Belgian business - prompting many industry watchers to question the company’s long-term future in the highly-competitive market.

Carrefour’s Italian operations also continue to struggle and - perhaps most importantly - the company continues to struggle to rejuvenate the performance of its French business, which generates 44% of sales.

As French consumers increasingly turn away from out-of-town hypermarkets, the group has looked to increase its focus on supermarket and convenience channels.

The decline of the hypermarket sector has left the future of Carrefour’s hypermarket business in serious doubt. Sales have declined, but paradoxically Carrefour remains dependant on the format, which generates 23% of group sales. The group is currently evaluating how to address the hypermarket issue and has indicated that it will reveal its plans for its hypermarket unit in France this summer.

Carrefour has also sought to improve its poor price perception in France by launching a range of heavily promoted own-label products and lowering prices in store.

However, as it battles to improve sales volumes, there is always the risk that Carrefour will have to sacrifice some of its profit margin. This concern prompted Credit Suisse to downgrade Carrefour shares from “neutral” to “underperform” last week, with analysts suggesting that Carrefour could have to further cut prices in France to avoid losing market share.

While the suggestion that Carrefour could exit Portugal has brought some cheer to the company’s beleaguered investors, it is likely that any optimism - and share price upside - will be short lived as Carrefour has far more pressing concerns to address in Europe.