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Carrefour Posts Profit on Cost Cuts, Maintains Goal

Carrefour CEO Lars Olofsson
Carrefour CEO Lars Olofsson, seen here, said sales in Europe were “satisfactory” in July and “a little bit weaker” in August. Photographer: Alastair Miller/Bloomberg

Carrefour SA, the world’s second-largest retailer, returned to profit in the first half of 2010 and said it’s confident of achieving full-year objectives, boosted by cost cutting and cheaper purchasing.

Net income was 82 million euros ($103.7 million), compared with a loss of 58 million euros a year earlier, the Paris-based company said today. So-called activity contribution, a measure of operating profit, rose 7.6 percent to 1.1 billion euros, meeting the company’s forecast, Carrefour said.

The retailer said market share at stores open at least a year increased in France, where it aims to win customers from rivals such as Auchan SA by cutting prices, offering more of its own products and investing in discounts. Sales in Europe were “satisfactory” in July and “a little bit weaker” in August, Chief Executive Officer Lars Olofsson said at a presentation. Costs were reduced by 236 million euros in the first half, almost half of Carrefour’s 500 million-euro target for 2010.

“The company looks well on track to deliver on its savings program,” James Grzinic, an analyst at Jefferies International Ltd. in London, said in a note. He rates the stock “buy.”

Carrefour fell 52 cents, or 1.4 percent, to 35.59 euros as of 1:04 p.m. in Paris trading, mirroring declines across Europe. The stock earlier rose as much as 2 percent.

One-Time Costs

The first-half figures included one-time costs of 384 million euros tied to the closure of 16 Belgian stores and inventory write-offs in Brazil. Excluding these and some other items, net income was about 519 million euros, Jefferies’ Grzinic said, beating his estimate of 456 million euros.

Full-year one-time costs will rise to 600 million euros from a previous estimate of 500 million euros, Chief Financial Officer Pierre Bouchut said at the presentation.

Activity contribution for the year should rise to about 3.1 billion euros from last year’s 2.8 billion euros, the company said, repeating a forecast it made in July.

In France, first-half earnings rose 16 percent to 513 million euros. The retailer’s domestic market share rose by 0.8 percentage point on a like-for-like basis and was stable at 24 percent overall. Carrefour will accelerate price cuts in the second half of 2010 to lure more French shoppers, Olofsson said. This won’t come at the expense of operating margins in France, which will continue to improve, he said.

Austerity Measures

In the rest of Europe, profit decreased 5.3 percent to 298 million euros, hurt by a 1.6 percent decline in sales, price cuts in Spain, and a 36 million-euro charge tied to job losses in Belgium, Carrefour said. Austerity measures stemming from the debt crisis are affecting Carrefour’s business in southern Europe, the company said last month.

Carrefour, which last week opened two pilot superstores in France, is shifting its international focus to markets where the company can have a leading position, such as China and Brazil. First-half revenue gained 6 percent to 43.7 billion euros.

In Latin America, activity contribution dropped 4.8 percent to 141 million euros. Profit was reduced by costs of 69 million euros for inventory write-offs and accounting adjustments in Brazil, Carrefour said. For the full year, one-time costs in Brazil will reach about 80 million euros, Chief Financial Officer Pierre Bouchut said at the presentation.

Activity contribution increased 28 percent to 144 million euros in Asia, led by China and Thailand. Carrefour sees the “first signs” of a turnaround in Taiwan and a rebound in Thailand, Olofsson said.

Carrefour will continue to expand in key markets such as Brazil, China, Indonesia and Turkey either by opening new stores or by acquisitions or strategic partnerships, Olofsson said.

Net debt was 11.3 billion euros as of June 30, down 58 million euros from a year earlier, Carrefour said. The retailer is committed to maintaining an A- debt rating, Bouchut said.

Carrefour defines activity contribution as gross margin from current operations, minus selling, general and administrative expenses, depreciation and amortization.

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