Carrefour French Earnings Jump 75% on Pricing Turnaround

Carrefour SA (CA), France’s largest retailer, reported a 4.9 percent increase in first-half profit as a revival in its domestic market more than offset the economic difficulties of southern Europe.

Recurring operating income advanced to 766 million euros ($1.02 billion), Boulogne-Billancourt, France-based Carrefour said today. The median of 11 estimates was 767 million euros.

Earnings in France rose 75 percent, beating estimates, with all formats showing “good profitability,” Carrefour said. The revival at home, inspired by lower prices and refurbished stores, came as profit slumped in the rest of Europe. Asia and Latin America trailed the prior-year performance.

“The improvement in France gives much credibility to the bull case that a great deal of self-help is available to the business and swift recoveries in earnings possible,” Alastair Johnston, an analyst at Citigroup Inc., said in a note.

Carrefour rose as much as 6 percent in Paris trading, the steepest intraday gain since Jan. 17. The stock was up 4.4 percent at 23.78 euros at 1:31 p.m.

First-half operating income in France was 482 million euros, surpassing Citigroup’s estimate of 325 million euros and BNP Exane Paribas’s prediction of 339 million euros.

To revive business in the retailer’s home market, where sales have barely grown in the past decade, Chief Executive Officer Georges Plassat has pledged to give more control to store managers and maintain low prices on food. His plan also includes renovating outlets, putting more non-branded goods on shelves and adding so-called drives, or pick-up points for online orders.

Domestic Margins

Carrefour, which gets almost half of sales from France, has said it can sustain its domestic margin without damaging competitiveness.

An increase in French profit margins in the first half “is evidence to us that the Georges Plassat’s action plan is working and France is coming back to a more normal level of profitability,” Credit Suisse analysts wrote in a note today.

The stronger performance at home compensated for weakness in other regions, particularly the rest of Europe, where earnings fell 76 percent. Operating profit declined 13 percent in Asia and 6 percent in Latin America, where growth was wiped out by the weakness of local currencies against the euro.

“Amid toughening consumption trends worldwide and exchange-rate volatility, Carrefour is staying the course,” the company said in the statement.

Currency Impact

The weakness of Brazilian real and the Argentine peso point to a slight reduction in the company’s guidance for full-year recurring operating profit, Chief Financial Officer Pierre-Jean Sivignon said on a call with reporters.

Carrefour expects earnings for the year to be in line with analyst estimates of 2.185 billion euros, the executive said. Sivignon said last month that estimates of about 2.2 billion euros were reasonable as long as the real and peso didn’t depreciate further against the euro.

The Brazilian and Argentine currencies have each lost about 13 percent against the euro this year.

Carrefour, which has dispensed with assets in Colombia, Malaysia, Singapore and Greece, doesn’t envisage further disposals, Plassat said at a presentation in Paris. The grocer may explore acquisitions and partnerships, he said.

Expansion Plans

“There will be things that come up for sale and we shall be observing all this,” Plassat said. “Once we’ve worked out the cost, then we can see in what form we could make an acquisition or a partnership so as not to once again create difficulties on our balance sheet.”

That may include in China, where Plassat said the grocer needs to improve local ties as it steps up expansion. Tesco Plc, the U.K.’s biggest retailer, last month agreed to merge its Chinese business with the country’s second-biggest hypermarket chain as sales decline.

“We do not know exactly what the various stages will be,” Plassat said of Carrefour’s plans in China. “China is a big country where many things are going to happen.”

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

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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