Europe’s largest retailer Carrefour SA today (9 March) revealed a double-digit decline in 2005 net profits, in a year that the company has dubbed ‘a year of transition’. Nevertheless, the company’s outlook is optimistic, predicting that sales and activity contribution will reach growth of around 10% by 2008.

The retail giant’s annual net income fell by 16% to EUR1.44bn (US$1.72bn) after charges associated with the closure of unprofitable stores of EUR372m. Excluding one off charges, profit rose 1.2% to EUR1.81bn, or EUR2.58 per diluted share. Operating profit declined 2.9% to EUR3.17bn for the year.

Sales in France slumped 0.4% to EUR35.6bn, but sales in the Americas increased 7.5% to EUR5.1bn and Asia sales advanced 12.6% to EUR5.7bn.

José Luis Duran, chairman of the Management Board, observed that Carrefour’s performance in Asia was aided by its withdrawal from the underperforming Japanese market and the acceleration of new stores. “China has been again a very good example, with 14 hypermarket openings,” he said. “But other countries are going to follow. Indonesia is a very strong growing market for us. Thailand is a good opportunity, Malaysia and Taiwan. In Taiwan, you have seen that we have been able to get to an agreement with Tesco, in order to take over its stores in 2006.”

Duran noted that, in Latin America, difficult circumstances faced in previous years had eased in 2005. Carrefour has also accelerated store openings in this market: “We have opened five hypermarkets in Brazil. We have taken over 11 hypermarkets from Sonae. We have opened seven hypermarkets in Colombia. I think it’s an extraordinary performance that should create a new platform for the years to come,” he said.

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Carrefour’s strategy to lower prices in an effort to gain back its French market share lost to discount chains led to a 0.2% decline in commercial group margin. But this sacrifice appears to have paid off and the group said that it won back food market share in France for the first time since 2000.

“We knew there was a certain price to pay in order to fit and, I would say, to turn around the French situation. So we can’t say that the results in France are good from an operating result point of view – we have seen a double-digit fall in operating profit in France – but it was the price we knew we had to pay if we wanted to turn around the situation in France,” Duran explained.
Looking to 2006, the French retailer said it expected operating profits to rise faster on sales growth. The company will continue its programme of expansion, investing in 100 new hypermarkets throughout the year.