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Price Cuts Weigh on Carrefour Earnings

A day after Carrefour ousted its chairman, the French hypermarket operator said profits of continuing operations rose only 3.3 percent in 2006 as a result of margin losses from substantial price cuts in its highly competitive home market.

PARIS — A day after Carrefour ousted its chairman, the French hypermarket operator said profits of continuing operations rose only 3.3 percent in 2006 as a result of margin losses from substantial price cuts in its highly competitive home market.

Carrefour, the world’s second-biggest retailer after Wal-Mart, on Thursday said net income last year reached 1.86 billion euros, or $2.34 billion, from 1.8 billion euros, or $2.24 billion, a year earlier, widely meeting analysts’ consensus expectations. Cur­rency conversions were made at average exchange rates for the respective periods.

On Wednesday, the company appointed Robert Halley, whose family is Carrefour’s largest shareholder, to replace Luc Vandevelde as chairman. Vandevelde, whose Change Capital Partners owns Jil Sander, had acquired some 10 million euros, or $13.1 million, in Carrefour stock on the open market, in a move interpreted to be the first step to a takeover attempt.

Vandevelde’s departure came right after Bernard Arnault, the chairman of LVMH Moët Hen­nessy Louis Vuitton, acquired a 9.1 percent stake in Carrefour, raising questions about the retailer’s future. Arnault’s stake was taken jointly with Los Angeles-based private equity fund Colony Capital, making the two partners the second-biggest shareholder after the Halley family, which holds a 13 percent stake.

During a press conference on Thursday, Jose-Luis Duran, Carrefour’s president, said representatives for Arnault and Colony had made “brief” and friendly contact with him on Wednesday.

Though Duran declined to comment on Vandevelde’s departure and on Halley’s arrival, he said the management shuffle didn’t presuppose a major strategy shift.

“The reasons [Vandevelde was ousted] are proper to the management board and to Luc Vandevelde,” said Duran. “It was not linked to operating strategy.”

Speaking of Arnault and Colo­ny, Duran said he didn’t expect their arrival to change Carrefour’s current direction. “I think we all share the same objectives: to create value for shareholders and serve or clients,” he said. “I have the impression the new investment is long term.”

Duran and Vandevelde had been trying to whip Carrefour into shape over the last two years by consolidating less profitable businesses, cutting prices in France and making acquisitions in promising growth markets such as Poland.

The fruit of that labor, though, has not fully satisfied investors, and Carrefour’s stock has slumped. Shares in the retailer finished down 1.17 percent to 52.18 euros, or $68.35 at current exchange, in trading on the Paris Bourse.

Reporters pushed Duran on the possibility that Arnault and Colony would want to sell parts of Carrefour’s large property holdings. Duran didn’t preclude real estate downsizing, but he said any such maneuver should not undermine the company’s operating strategy. Duran denied reports that certain members of the Halley family recently had sold shares, saying the family’s controlling stake remains in place.

Duran said sales in the first two months of the year “remained difficult” in France due to “extremely active competition” in terms of price-cutting, something that has been the main challenge for Carrefour over the last few years as discounters have become more powerful in France.

Nonetheless, Duran promised sales growth this year would at least match last year’s sales improvement of 6.6 percent to 77.9 billion euros, or $97.85 billion.

Meanwhile, Duran said Carre­four was in advanced talks with several partners to open in India, and that the retailer already had assembled a management team in Russia to start opening stores there by 2008. Carrefour’s main competitor, Wal-Mart, also is breaking into the Indian market and has said it is eager to expand into Russia.