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January 19, 2012

UPDATE: FRANCE: Analysts gloomy on Carrefour prospects

Analysts have issued a grim assessment of Carrefour's prospects after the retailer reported lower 2011 sales, confirmed its annual profits would slide and announced it would review its Planet hypermarket format.

Analysts have issued a grim assessment of Carrefour’s prospects after the retailer reported lower 2011 sales, confirmed its annual profits would slide and announced it would review its Planet hypermarket format.

Earlier this morning, Carrefour reported lower fourth-quarter and full-year sales and announced annual profits would be “at the lower end” of the forecast of a 15-20% fall it issued in October. It capped off a turbulent year for Carrefour, with five profit warnings, shareholder grumbling and the under-performance of its hypermarkets.

Simon Chinn, lead consultant at Conlumino, said a silver lining of growth from its operations in Latin America and Asia was not enough to compensate for a “pretty dire” overall performance and significant slowdown in core European markets, adding that there may be more upheaval on the horizon.

He said: “Carrefour is particularly vulnerable to the ongoing eurozone crisis, given its exposure to the downtrodden and austerity-stricken markets in southern Europe and its extensive store estate of persistently under-performing hypermarkets on the Continent.”

He added that the “jury is still out” on whether the Carrefour Planet format, where stores are refurbished and focus on better performing areas such as food, will help turn the hypermarkets around.

“It’s clear that Planet hasn’t been the optimal solution,” he said. “While in principle the store revamps look good and significantly improve the shopping experience, they come at a significant cost.

“Carrefour’s focus should be on improving its multichannel shopping capabilities for customers, with greater integration of its web with physical store offer, something that its rival Casino has done well and reaped the benefits from. This is the way consumers are now shopping and Carrefour needs to adapt to these new shopping habits.”

Clive Black, director and head of research at Shore Capital Stockbrokers, was similarly damning of Carrefour’s 2011, citing poor like-for-like sales.

“Carrefour has had a miserable year and it didn’t get any better towards the end. I’m sure the management team will be glad to see the back of 2011. The numbers in Spain and Italy were borderline frightening. Spain’s like-for-like was down 7% and Italy was down nearly 9%,” Black said, although he added: “They are worrying numbers, more reflective of the economy than Carrefour.”

Nevertheless, Black said Carrefour needs to stabilise its management team and get investors and management to work together if it wishes to face its problems. He sees the speculation over Planet as a “sideshow”, rather than a core indicator of Carrefour’s performance.

He said: “It is a tiny proportion of [Carrefour’s] sales and over-utilised as a hook to keep positive investor sentiment. At this juncture it’s meaningless.”

A note from Bernstein analyst Chris Hogbin said the results were “maybe not as bad as feared by some investors”, but highlighted the “significant challenges” facing the business and did not give the impression that management have a “comprehensive or credible solution to address Carrefour’s issues”.

It added: “Carrefour’s trading statement and presentation highlighted numerous action plans underway across the globe to improve operating performance, but given previous failure of management to successfully execute a turnaround, we expect most investors would rather wait for tangible evidence that they are working, before believing in them.”

Share prices today reached an early high of EUR17.80 (US$23), then dropped to 16.89, before rising slightly to EUR17.17 as of 2.03pm CET.

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