Carrefour Cuts Dividend as Profit Drops, Superstore Conversions Held Back

Carrefour SA (CA), the world’s second- largest retailer, cut its dividend by more than 50 percent and said it would “significantly scale down” superstore conversions as annual profit declined.

The payout for 2011 will be 52 euro cents (69 cents) a share, down from 1.08 euros in 2010, the Boulogne-Billancourt, France-based retailer said today in a statement. The average estimate of 31 analysts compiled by Bloomberg was for a dividend of 80 cents. Current operating income fell 19 percent to 2.18 billion euros, the grocer said, meeting its own forecast.

Revamped superstores, while performing better than non- converted outlets, haven’t met expectations, Carrefour said, citing “unprecedented macroeconomic conditions in southern Europe” and “operational hurdles in France.” Eleven outlets will be converted in 2012, bringing the total to 92, according to the retailer, which in 2010 announced plans to change about half of 500 superstores in western Europe to the Planet model.

“Cash-flow preservation will be the clear priority for the foreseeable future,” James Grzinic, an analyst at Jefferies in London, wrote today in a note to clients. The retailer had “a tough 2011,” said the analyst who recommends holding the stock.

Carrefour rose 0.5 percent to 17.72 euros in Paris, giving the grocer a market value of 12 billion euros.

Planet Failure

The revamp of Carrefour’s superstores, which are its least profitable format, has failed to improve the retailer’s image in terms of price and the non-food offer needs adjusting, outgoing Chief Executive Officer Lars Olofsson said at a presentation. Carrefour’s total market share in France declined 0.5 percentage point to 21.3 percent in 2011, he said.

Further conversions are on hold and modification costs will be reduced before the program resumes, Chief Financial Officer Pierre-Jean Sivignon said. The grocer said it has spent 369 million euros of 1.5 billion euros earmarked for the upgrades, with each Carrefour Planet store costing about 4 million euros. Still, the format “has a future,” Olofsson said.

Scaling back the store conversions is “not surprising” ahead of the arrival of a new CEO, said Arnaud Joly, an analyst at CA Cheuvreux who has an “underperform” recommendation on the stock, in a note to clients.

Biggest Task

Carrefour this year named Georges Plassat as its fourth CEO in eight years after forecasting lower profit five times in the past 18 months. Plassat will join the grocer on April 2 as chief operating officer and become chairman and CEO after a June 18 shareholders meeting, replacing Olofsson.

The retailer has been slow to adapt to shifting consumer behavior in Europe, where shoppers are favoring local stores and online to out-of-town superstores, which account for about 40 percent of sales. Plassat has the biggest task in retail this year to turn round the company, according to Natalie Berg, global research director at Planet Retail.

To address the challenging economic environment in Europe, the grocer said it will reduce prices, including matching the lowest price on 500 branded items, offer fewer promotions and boost the number of Carrefour-branded products on shelves. In France, it will also add more so-called drive pick-up points and develop e-commerce, it said.

‘Severe Recession-Mode’

Carrefour is in “severe recession-mode” in Greece, where it’s cutting rental, personnel and operational costs, Olofsson said. The country was the retailer’s only unprofitable market in 2011, the CEO said.

Carrefour said it will cut capital expenditure this year to between 1.6 billion euros and 1.7 billion euros from 2.3 billion euros in 2011. Spending levels will remain unchanged in emerging markets, where the grocer maintains its “strong commitment” to expanding in China, Brazil and Indonesia, Carrefour said.

The company will target cost savings of 400 million euros in 2012 as well as a planned two-day reduction in inventories, according to the statement.

The retailer also proposed a new dividend payout policy of about 45 percent of net earnings, adjusted for one-time items.

Carrefour said in January that full-year earnings declined by closer to 20 percent than 15 percent. The retailer uses current operating profit, which takes into account last year’s spinoff of the discount chain Distribuidora Internacional de Alimentacion SA as well as other items. Analysts had expected profit on that basis of 2.19 billion euros, the average of six estimates gathered by Bloomberg.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net

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