Carrefour’s shares climbed today after the French retailer’s 2012 results, which included better-than-expected core profits and higher earnings in France. Analysts cautiously welcomed the numbers, although they argue more work needs to be done.
Justin Scarborough, Bank of America Merrill Lynch
A volatile performance so far intra day, with the shares up as much as 6% and now up just over 4%. Nearly twice the average daily volume has been traded so far this morning.
French sales trends have improved over the course of the year, with a small increase in profitability and market share is going up. Margins should be sustainable without hurting competitiveness although the pricing environment is unlikely to get any easier in France in 2013.
Given that most of the major restructuring is complete, the focus is clearly now on improving the operating performance of the company. This means continued investments in price and price perception; tweaking the offer between food and non-food, and decentralising i.e giving the local store managers more responsibility on price and promotion.
There is little new or revolutionary here and Carrefour will remain a multi-format company. They are going to have to continue to work at price perception, given that they are number two but perceived as a number three in terms of price leadership.
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We see some improving and encouraging signs, but there was little in today’s call to drive up numbers – which on the positive side will keep expectations low and easier to beat. On the negative side at around 15x earnings, the shares are clearly trading on a recovery multiple and they will need to sustain the momentum we saw in the second half.
Kepler Capital Markets analyst Fabienne Caron
FY EBIT came out above our numbers at EUR2.1bn and 3.3% above consensus of EUR2.070m. France increased EBIT margin by 20bp in H2 to 3.5%. Although the company remained focused on price, this bodes very well for 2013. As a whole, this set of numbers should be taken positively given the weight of France within the group.
The reading of the margin in H2 is distorted, as we have no sales pro forma. However, it appears clear that French EBIT margin increased by 20bp in H2 to 3.5% which is the reassuring message of the statement, as price investment was offset by better margin mix and lower SGA.
In Europe, Spain and Italy remain a drag as price cuts cannot be offset by cost savings, but FY numbers are better than expected. Latam was as expected, while Asia was below.
Daniel Lucht, analyst, Research Farm
The France improvement is encouraging. It looks like first stage of turnaround . Obviously it takes time to place the right individuals in the right positions in the company and then to execute the right strategy. It also looks like the reorganisation of the supply chain (better inventory ratios) is showing first effects
The focus needs to be on growing food more in hypers, non food in France in general (e-commerce!). The good news: they’re finally catching up on Drives in France.
There is a difficult trading environment in Euro periphery and results clearly show the impact. Then again Mercadona has grown right through the recession in Spain (as have Aldi, Lidl), which means the discounter remain major threat to Carrefour’s hypers.
The retrenchment abroad (non EU) is also the right move, Carrefour was probably overstretched a bit in the past. They need to be a lot more focused and determined in which markets they want to operate than they were in the past.