Carrefour Sees Glimmer of Turnaround

The company revealed it had narrowed the first-half net loss compared with a year earlier and detailed elements of its turnaround plan, including 600 job cuts.

PARIS — Could Carrefour finally be turning a corner?

This story first appeared in the August 31, 2012 issue of WWD.  Subscribe Today.

The French retailer’s shares closed up 6.7 percent at 16.81 euros, or $21.14, on the Paris Bourse on Thursday after the company revealed it had narrowed the first-half net loss compared with a year earlier and detailed elements of its turnaround plan, including 600 job cuts.

“I am very confident,” Carrefour chief executive officer Georges Plassat said in a three-hour press conference, during which he often displayed a combative streak. “We’re still here, but maybe we’re going to change our game. We were at the back of the court. We may step up to the net.”

Analysts hailed the figures as the first sign of change since Plassat took over in May from his predecessor Lars Olofsson, who struggled to turn around Carrefour’s underperforming hypermarket business and presided over a string of profit warnings.

The world’s second-largest retailer behind Wal-Mart Stores Inc., Carrefour posted a loss of 31 million euros, or $40.2 million, in the six months ended June 30 versus a loss of 249 million euros, or $349.3 million, during the same period last year.

The retailer attributed the loss mainly to the cost of selling its stake in Greek supermarket chain Marinopoulos and closing its two stores in Singapore. Not including discontinued operations, Carrefour would have posted a net profit of 199 million euros, or $258.3 million, compared with a loss of 879 million euros, or $1.2 billion, during the corresponding period in 2011. Dollar figures have been converted at average exchange rates for the periods to which they refer.

First-half operating profit fell 8.2 percent to 769 million euros, or $998 million, exceeding analysts’ expectations. Sales rose 0.9 percent to 38.8 billion euros, or $50.38 billion, as gains in Latin America were offset by continued sluggishness in its core European markets, in particular southern Europe.

Plassat said Carrefour would offer voluntary redundancy to between 500 and 600 administrative staff at its headquarters, but added he did not predict further job cuts at this stage.

He declined to provide detailed figures for his turnaround plan, saying his efforts would be judged on the company’s financial results. Reiterating comments he made at the annual general meeting in June, Plassat said the process would likely take three years.

Chief financial officer Pierre-Jean Sivignon said the company would no longer issue guidance, but simply comment on market consensus estimates. He added that Carrefour remained comfortable with analysts’ forecasts of full-year operating profits of 2.03 billion euros to 2.09 billion euros, or $2.55 billion to $2.63 billion.

Plassat confirmed capital expenditures would total some 1.6 billion euros, or $2 billion, in 2012. He acknowledged this amount would have to rise next year in order to fund Carrefour’s ambitions, but said he was opposed to a capital increase.

Instead, the company will need to track and eliminate waste and trim financial costs by curbing debt, Plassat said. Carrefour’s net debt totaled 9.6 billion euros, or $12.5 billion, at the close of the first half, down 9.6 percent year-on-year.

“Our debt is manageable, but it does not give us any margin for maneuver to turn around the company, so we have to work on it,” he said. “We have to improve our production of operational cash flow.”

Plassat said Carrefour was mulling whether to stay in Indonesia and Turkey, where it has local partners, but he pledged to continue investing in the company’s core markets: Europe, Brazil and China.

The executive also remains committed to the nonfood category, which he estimated accounts for around 30 percent of sales in Carrefour’s hypermarkets.

Unlike Olofsson, a Nestlé veteran, Plassat has a strong track record in ready-to-wear, having joined Carrefour from fashion group Vivarte, which owns brands including the Minelli and André footwear chains and the Kookaï and Naf-Naf women’s wear stores. Addressing the prospects of the textiles division for the first time, he expressed confidence that this sector could grow.

“Currently, the average weight of textiles in global store sales is less than 8 percent, but when you look at it in terms of absolute value, it remains an extremely large business, and I am convinced that, by reintegrating this into our core competencies and focusing on great products, which are not necessarily in competition with those of specialists, we can very clearly increase this share,” he said.

“What we have to do with textiles in hypermarkets is to have better stock management,” he said, noting that unpredictable weather had left many retailers holding large inventories. “One of the strengths of hypermarkets is that they can make a significant portion of their offer less seasonal.”

The executive’s approach to textiles is part of an overall drive to simplify its business, with fewer products on shelves and everyday low prices on basic foods. Promotions increasingly will target high-demand branded goods and advertising will no longer be limited to traditional media, Plassat explained.