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  1. Analysis
April 15, 2011

Focus: Carrefour Q1 sales greeted with mixed response

Carrefour is a retailer regularly in the industry headlines and yesterday the French retail giant issued its first-quarter sales figures. Analyst reaction, Dean Best writes, was mixed.

By Dean Best

Carrefour is a retailer regularly in the industry headlines and yesterday the French retail giant issued its first-quarter sales figures. Analyst reaction, Dean Best writes, was mixed.

For a company that has seemingly spent much of the last few years looking to reinvent itself, perhaps one should not read too much into one quarter’s sales figures.

However, the size of Carrefour, the interest in its plans to reinvent its hypermarkets in France and its proposals to spin off parts of its business means the French retail giant is rarely out of the industry headlines.

Yesterday, after the Paris stock market closed for the day, the world’s second-largest retailer published its sales for the first quarter of 2011.

Today, Carrefour’s shares have fallen – they were down 1.95% at EUR30.43 at 15:06 CET – although it is unclear whether the market was dissatisfied with the retailer’s sales numbers or its deal to sell 49% of its financial unit in Brazil, a deal also announced yesterday.

Focusing, though, on Carrefour’s first-quarter sales. The retailer’s overall sales were up 3.9% to EUR24.6bn. On a like-for-like basis, growth was more anaemic, with sales up 0.8%.

Carrefour was buoyed by its emerging markets, where its like-for-like sales rose, albeit by 1.8%. Latin America (Brazil and Argentina) and Asia (China and Indonesia) led Carrefour’s charge in emerging markets, with the retailer admitting that its like-for-likes in all of its growth markets in Europe – Poland, Romania and Turkey – fell.

However, with emerging markets broadly speaking in growth (although Carrefour will be keen to see its like-for-likes in Eastern Europe bounce back quickly) much of the interest from the investment community is on France and western Europe.

During the first quarter, Carrefour’s like-for-likes in France were down 0.9% and in the rest of Europe, they fell 4%.

The retailer shed some light on the performance of its new Carrefour Planet stores – a concept keenly watched by industry watchers as the retailer attempts to reinvent its hypermarket business in France.

Carrefour is also planning to roll out the format to its other European markets – it already has a test store in Spain – and has set a target of having 92 Carrefour Planet stores up and running by the end of the year. Yesterday, it disclosed that, since the first six opened, it had sales in those outlets grow by an average of 6.2%. Four more blueprint Carrefour Planet stores being tried out saw traffic increase 9.9%.

The operating environment in France and in western Europe remains challenging but some analysts took some positive signs from Carrefour’s performance. Matthew Truman, an analyst at JP Morgan Cazenove, said Carrefour had “delivered early signs of a stabilising operational performance”.

Truman said those signs were “encouraging” giving the investment bank “ongoing belief that a positive share price reaction will come from an operational turnaround rather than a financial reformation”.

Truman pointed to the improvement in traffic at the blueprint Carrefour Planet stores, progress in gaining market share in France on a like-for-like basis and an improvement in non-food.

Others in the investment community took a somewhat more cautious tone on Carrefour’s performance in France. Sanford Bernstein’s Christopher Hogbin said the 1.3% fall in Carrefour’s like-for-like sales in the country – excluding fuel – was worse than the 1.1% fall posted in the fourth quarter in 2010. Hogbin did, however, say that Carrefour had asserted this was due the fact that Easter is later this year.

Nonetheless, Hogbin noted Carrefour had increased its promotions amid the tough competitive landscape in France. He also cited Carrefour’s move to increase prices late last month by 2% on average following the annual negotiations with the country’s food manufacturers. The retailer’s admitted, however, that not all of the its rivals had done the same, Hogbin said.

Carrefour, Hogbin said, had promised “quick action”, including going to suppliers, if its competitors do not up their prices but the detail disclosed by the analyst indicates how particularly competitive the French retail sector is right now. And Hogbin noted that “despite increases in promotional activity, traffic in hypermarkets declined 2.2% in the quarter”. 

Uncertainty over the effectiveness of Carrefour’s promotional strategy, the lack of clarity over whether the retailer’s rivals will increase prices and the ongoing tension among retailers and suppliers over commodity costs mean the company’s margins could come under pressure as it moves through 2011.

On the Carrefour Planet stores, Hogbin admitted that sales trends were “a little more encouraging” than when the company gave its last update at its full-year results in March.

However, Hogbin argued: “The fact that one-third of the trial stores have not worked, raises the question of whether Planet can successfully be rolled out to the planned 500 stores.”

At JP Morgan Cazenove, Truman’s verdict on Carrefour’s performance in western Europe was more mixed. Trading conditions, Truman said, were “tough” (even if he noted this was “hardly new news”) but Carrefour’s business in Italy, the analyst argued, suffered from “a lack of promotional pricing and poor positioning” – sentiments echoed by Bernstein’s Hogbin.

However, Truman argued that Belgium’s “ongoing progress” was the “standout” of Carrefour’s results in western Europe. “It should give confidence to investors buying into the current management team’s ability to restructure France,” he said.

Carrefour is hosting a meeting for analysts next month, when, among other issues, it will discuss its plans to spin off a quarter of its property arm and the whole of Dia, its discount business.

The retailer will face a fight in pushing through the plans; some investors are reportedly opposed to the proposals and, when Carrefour announced the plans last month, some analysts were unsure about how much value the spin offs would bring to the company’s shareholders.

With Carrefour facing challenges in France and across parts of western and Eastern Europe, CEO Lars Olofsson has much to ponder in the months ahead.

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