French retail giant Carrefour said today (17 May) that it anticipates a lift in full-year sales and operating income, as expansion in emerging markets is expected to offset ongoing difficulties in western Europe.
The company posted two profit warnings last year and has since struggled to turn around its performance in developed markets.
In a statement released ahead of its investor meeting this morning, Carrefour acknowledged that the economic situation remained difficult in most Western European markets. However, the company said that it has noted “encouraging signs” in Belgium and Spain.
In its domestic market, where Carrefour generates 40% of sales, the French retailer said that its performance in 2011 has been “unsatisfactory”. Carrefour also revealed that major increases in raw material prices are impacting supplier negotiations.
However, the company remained upbeat on its plan to turn around its operations in the country, for which CEO Lars Olofsson took direct operational responsibility this month after the departure of country head James McCann.
“The very encouraging results we are seeing from Carrefour Planet, our new hypermarket concept, and the continued execution of our transformation plan, underpin our confidence that we are on track to achieve our goals,” Olofsson insisted.
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By GlobalDataCarrefour added that growth in Latin America and Asia remains strong and is expected to compensate for a lacklustre performance in western Europe.
Carrefour management also moved to defend its plans to spin-off hard discount unit Dia, a significant plank of the company’s plan to increase returns to shareholders. Under Carrefour’s proposal, Dia will be spun off in the form of distribution of an exceptional dividend in kind to Carrefour shareholders. The group would then be listed on the Spanish stock exchanges.
Carrefour said that Dia expects compound annual sales growth of 7% in the 2010-2013 period, while cash adjusted EBITDA is anticipated to rise by 10% in the same period. Capital expenditure is estimated to total EUR300m (US$425.9m) to EUR350m per year and the company intends to open 450 to 750 stores per year, reaching 8,000 stores in 2013.
Carrefour added that it continues to prepare for a future listing of its property unit, having this month delayed a plan to spin-off the business after investor opposition and management upheaval.
Carrefour Property, Carrefour’s real estate arm in France, Spain and Italy, targets net rental income of EUR820 in 2015, the company said.
Carrefour shares rose 2.11% in trading in Paris this morning, climbing to EUR30.98 at 11:00 BST.
Commenting on the retailer’s prospects, RBS analyst Justin Scarborough said that he saw some upside in Carrefour’s shares, which he suggested had entered oversold territory. However, he remained cautious on its proposals to rejuvenate the business.
“The shares are probably a bit oversold and there are some near-term catalysts that could help the bull case and the shares could see a small move up in the short-term but we struggle to derive a strongly positive investment case,” he said.