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Carrefour Turnaround Gains Traction

Sales rose 2.1 percent in the third quarter, driven by emerging economies, although Southern Europe continued to struggle.

A Carrefour hypermarket in Changzhou, China.

PARIS — Carrefour SA said sales rose 2.1 percent in the third quarter, driven by emerging economies, although Southern Europe continued to struggle as austerity measures prompted consumers to tighten their purse strings.

This story first appeared in the October 12, 2012 issue of WWD.  Subscribe Today.

Carrefour, the world’s second-largest retailer behind Wal-Mart Stores Inc., posted sales of 22.63 billion euros, or $28.3 billion, in the three months ended Sept. 30. Dollar figures have been converted at average exchange rates for the periods to which they refer.

On a constant currency basis and excluding gas, like-for-like revenues edged up 0.2 percent in the quarter.

“The quarter was characterized by contrasting trends between continued growth in emerging markets and a persistently challenging environment in Southern Europe,” chief financial officer Pierre-Jean Sivignon said in a conference call.

Analysts hailed the better-than-expected results as a sign that the reforms being put into place by new chairman and chief executive officer Georges Plassat are beginning to bear fruit.


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The turnaround plan involves cutting 600 jobs and abandoning the Carrefour Planet hypermarket concept introduced by his predecessor, Lars Olofsson, who struggled to redress the underperforming hypermarket segment and presided over a string of profit warnings.

Plassat has warned that it will take three years to put the company in order, as Carrefour faces a slowdown in consumer spending not only in the euro zone, but also in more recent markets like China.

The retailer has restated its accounts to reflect the reclassification of its activities in Greece and Singapore as discontinued, after it sold its stake in Greek supermarket chain Marinopoulos and closed its two stores in Singapore.

 

Carrefour has not provided official guidance for 2012, but Sivignon said it expects recurring operating income to fall within the revised range of 2.07 billion euros to 2.1 billion euros, or $2.61 billion to $2.68 billion, forecast by analysts.

French budgetary measures approved in August are expected to have an impact of 50 million euros, or $64.2 million, on Carrefour’s 2012 accounts, while a planned reduction in the deductibility of interest on debt will result in an estimated charge of 35 million euros, or $45 million, he said.

Sales in France, its core market, rose 1.2 percent in the third quarter, helped by a rise in fuel sales as a result of the retailer’s “low price guarantee” launched in hypermarkets in May. Excluding petrol, like-for-like sales in French hypermarkets fell 3.3 percent during the period.

Sivignon noted that this marked an improvement over the 5.7 percent drop in hypermarket sales recorded in the second quarter, adding that the retailer has seen a “slow, gradual improvement” in its price perception on the domestic market.

 

“While we are pleased with these encouraging signs, we are still hard at work in France. We remain cautious in what will be a difficult and competitive environment in the fourth quarter,” he added.

Sales in the rest of Europe were down 2.2 percent, with Italy posting an 8.3 percent drop and Spain recording a 3.2 percent decline. “This constitutes a resilient performance, given the tough trading environments in which we are operating, in particular in the south of Europe,” Sivignon noted.

Turnover in Latin America rose 5.2 percent during the quarter, with sales in Brazil — Carrefour’s second largest market — edging ahead by 0.1 percent.

Meanwhile, turnover in Asia jumped 12.3 percent, although like-for-like sales in China were down 6.1 percent as consumers adjust to slower growth, despite a rise in the minimum wage.

Sivignon said Chinese sales in the third quarter were impacted by the Mooncake Festival and National Day, which overlapped this year, meaning retailers lost up to five high volume trading days.

 

The cfo added that sales in China were supported by expansion, noting that Carrefour opened three stores in the country in the third quarter, bringing the total of new stores to eight so far this year.

“We are one of the only profitable food retailers in China, and as you know, we generate strong cash flow there and we believe that our strategy is adapted to the Chinese market,” Sivignon said.

Carrefour shares closed up 3.7 percent at 16.58 euros, or $21.31, on the Paris stock exchange on Thursday.