Carrefour‘s third-quarter trading update, which included a cut to its forecast on full-year profits, should provide a “reality check” on the state of the business, a leading analyst has warned.

Sanford Bernstein retail analyst Christopher Hogbin said a slowdown in Carrefour’s like-for-like sales in France and the results of an ongoing internal audit of the company’s Brazilian business shed light on the challenges facing the world’s second-largest retailer.

Last month, Carrefour’s management set out ambitious sales targets for the next five years but, in a note to clients, Hogbin warned the company faced tests ahead.

“Following Carrefour’s recent investor day, investors have been focused on the potential longer term upside implied by Carrefour’s plans to reinvent its hypermarkets and from its ‘consensus-busting’ medium-term profit targets,” Hogbin wrote. “However, in our view, the third-quarter trading update – with little improvement in France and concerning developments in Brazil – should serve as something of a ‘reality check’ on the current challenging state of the business.”

Hogbin added: “Carrefour’s third-quarter sales results highlight the challenges that continue to face the French operations. While Carrefour remains focused on its plan to reinvent its hypermarkets and achieve the targets laid out at its September analyst day, we believe there will be little evidence that will support or challenge these targets in the next 12 to 18 months.

“Uncertainty remains about Carrefour’s ability to retain the full benefits of its remaining planned cost reduction and with the roll-out of Carrefour Planet not starting until next year, there will be no immediate proof that the concept is delivering against the forecasts provided by management.”

Charges incurred within Carrefour’s Brazil business has led the retailer to cut its “activity contribution” target from EUR3.1bn (US$4.37bn) to EUR3bn. Hogbin said investors might treat these costs as “one-off in nature” but he questioned the company’s management of its business outside France.

“In our view, [the charges] should raise serious questions about the level of management oversight across Carrefour’s international operations,” Hogbin said.