Carrefour Cuts Annual Forecast After French Earnings Slump

Carrefour SA, the world’s second-largest retailer, cut its forecast for profit this year, saying it expects a decline of about 15 percent amid a slump in France.

The grocer previously forecast an increase in current operating income from restated 2010 figures, the Boulogne Billancourt, France-based company said today in a statement. The median estimate of five analysts surveyed by Bloomberg News was for an 11 percent drop in profit to 2.4 billion euros ($3.5 billion).

Carrefour will step up its expansion of smaller stores and lift the proportion of own-label goods it sells to woo more shoppers focused on convenience and price, the company said at a presentation today. Carrefour has lost about a third of its market value this year amid slipping profit in France.

The new outlook is “worse than consensus,” Christopher Hogbin, an analyst at Sanford C. Bernstein, said by phone. “On the plus side, it does seem as if we have a bit of a dose of realism coming out of management.”

As recently as July 13, Carrefour forecast a “progression in sales and current operating income,” while saying the first-half profit drop was a “handicap” to meeting the target.

Carrefour shares fell as much as 85 cents, or 4.5 percent, to 17.80 euros and traded 2.3 percent lower at 18.22 euros as of 10:43 a.m. in Paris trading. The company has a market value of about 12.4 billion euros.

New Strategy

The new strategy “will put Carrefour back on a sound footing to rebuild momentum,” Olofsson said. The company will sacrifice short-term sales growth to build a sustainable platform for profit expansion, it said. Current operating income fell by 40 percent in France in the first half.

Olofsson, who took the top job in 2009 after a decade in which sales barely grew in France, has sought to reverse decreasing market share in the country via a 1.5 billion-euro revamp of 500 superstores, or hypermarkets, across Europe. The plan has so far failed to win over enough consumers and doesn’t address demand for convenience and proximity, analysts have said.

Carrefour will convert fewer stores to the new format, dubbed Carrefour Planet, this year than originally forecast, it said today. The full conversion will occur by 2013 as planned. The four so-called “model” Planet stores posted sales growth of 14 percent in the first half as more shoppers visited, advancing their market share.

First-Half Profit

First-half current operating income decreased 22 percent to 772 million euros, Carrefour said. The retailer said last month it expected profit in the period of about 760 million euros. The company posted a net loss of 249 million euros, as it had exceptional charges of 884 million euros.

Profit in Europe fell, as a challenging economic environment in Greece and Italy outweighed a recovery in the company’s Belgian business.

In Brazil, where a proposal to merge the company’s business with a local rival fell through last month, profitability increased “significantly,” Carrefour said. The company remains committed to Brazil and the stores are not for sale in the country, Olofsson said today.

Carrefour, which wrote down the value of its business in Brazil by 550 million euros last year, is improving purchasing decisions in the country while cutting overhead and converting underperforming superstores to its more successful Atacadao cash and carry brand.

A spinoff of the company’s property business, which the company postponed earlier this year amid shareholder opposition, is still “possible,” Chief Financial Officer Pierre Bouchut said today. He will leave the post from tomorrow.

(Updates with company comments from third paragraph.)
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