Carrefour: sales weak, but not getting worse

Carrefour, Europe’s biggest retailer, defied fears of another profit warning, sending its shares soaring as new management said that while trading remained weak in austerity-hit countries like Spain and Italy, it was not getting worse. The French group said it was “comfortable” with the market consensus for 2012 earnings before interest and taxes (EBIT) of 2.03-2.09 billion euros, which would mean a year-on-year profit drop of 5-8 percent — breaking a run of downgrades. Shares in the world’s largest retailer after Wal-Mart were up more than 6 percent to 13.91 euros by 1058 GMT, the top gainers on the French blue-chip CAC 40 index. “This is clearly positive in the context of fears of further significant downgrades,” Espirito Santo analysts said. The arrival of Georges Plassat, a retail veteran who took over in May, has fueled hopes Carrefour can finally get to grips with years of underperformance in its main European markets, where its hypermarkets have been hit by competition from specialist stores and trends toward local and online shopping. However, Plassat faces a tough task against a weak economic backdrop. Retailers across much of Europe are struggling as shoppers’ disposable incomes are squeezed by rising prices, muted wage growth and government austerity measures, while confidence is sapped by the euro zone debt crisis. German rival Metro warned last week the crisis was hurting demand in Europe’s biggest economy. Carrefour said second-quarter like-for-like sales dropped 1.3 percent, dragged down by falling demand in recession-hit Italy and Spain and sluggish French hypermarket revenue. Second-quarter sales were 21.72 billion euros ($ 26.6 billion), slightly above the average of analyst estimates of 21.65 billion. Stripping out fuel and currencies, revenue at its core French hypermarkets fell 5.7 percent against a 5.8 percent fall in the first quarter. Finance chief Pierre-Jean Sivignon said the first half usually contributes around 35 percent to full-year profit. After a recent warning from food giant Danone highlighted trouble in Spain, many analysts had been anticipating that Carrefour, which is heavily exposed there too, would guide lower on profits, leaving Plassat free to focus on his turnaround plan for the group when he presents first-half results in late August. Carrefour has big operations in some of the countries worst hit in the euro zone crisis, like Spain and Italy, having pulled out of Greece last month. Spain, Italy and France accounted for 61 percent of group sales in the second quarter. Quarterly like-for-like sales excluding petrol fell 7.4 percent in Spain and 4.3 percent in Italy. However, the downward sales trend slowed in Spain in the second quarter from the first quarter, and in Italy, non-food hypermarket sales were improving, Carrefour said. In emerging markets, China continued to struggle but non-food sales were recovering, while Brazil, now Carrefour’s second-largest market after France, put in a strong performance. Carrefour has tied the slump in French hypermarket sales to a tough economic climate, which hit non-food sales, and to the effects on sales of its ‘Reset’ plan, which entails fewer one-off promotions and more consistently lower prices. Carrefour shares have lost 25 percent this year, sharply underperforming a 0.25 percent decline in the European retail sector. From arabnews