This story first appeared in the March 8, 2013 issue of WWD. Subscribe Today.
PARIS — Carrefour’s streamlining has started to pay off.
The world’s second-largest retailer behind Wal-Mart Stores Inc. said net profits more than tripled in 2012 as it disposed of underperforming assets to focus on turning around its largest market, France, and expanding in Latin America and Asia.
Shares in Carrefour closed up 2.9 percent at 22 euros, or $28.67, on the Paris Stock Exchange on Thursday after it reported that net income rose to 1.23 billion euros, or $1.59 billion, from 371 million euros, or $516 million, in 2011. All dollar rates are calculated at average exchange rates for the period to which they refer.
Asset disposals contributed 1.1 billion euros, or $1.44 billion, to the total after Carrefour closed its stores in Singapore and sold its operations in Greece, Colombia, Malaysia and Indonesia.
Chief executive officer Georges Plassat, who took over last May, said that after an initial analysis period, the retailer was entering into the execution phase of its three-year turnaround plan.
“Our results in 2012 were not sparkling — they were good compared with what we were expecting,” he said at a news conference. “We have rebuilt reserves to reinvest. We must imperatively do so.”
Carrefour posted sales of 76.8 billion euros, or $98.74 billion, in 2012, an increase of 0.9 percent in reported terms and 1.6 percent at constant exchange rates.
Turnover in France rose 0.5 percent, even as the rest of Europe posted a 3.1 percent decline, mainly due to the impact of continued austerity measures in Italy and Spain.
Sales in Latin America were up 4.6 percent, thanks to solid like-for-like sales in Argentina and Brazil, where Carrefour has successfully turned around its business.
Revenues in China rose 10.3 percent, although stripping out the impact of volatile currencies, the increase was only 0.5 percent. “Continued productivity gains did not fully offset the increase in distribution costs linked to expansion and wage inflation in China,” Carrefour noted.
Recurring operating income fell 2.6 percent to 2.14 billion euros, or $2.75 billion, beating the median market consensus, which stood at about 2.07 billion euros, or $2.66 billion.
The retailer said it would invest between 2.2 billion euros and 2.3 billion euros, or $2.9 billion and $3 billion at current exchange, in 2013, up from 1.55 billion euros, or $2 billion, the previous year. It will direct half toward remodeling stores and the other half toward expanding in emerging markets, Plassat said.
“Retailers who do not make long-term investments are doomed,” he remarked. “We must imperatively rekindle expansion in a more structured way.”
Plassat said Carrefour needed to remodel 150 of its 220 hypermarkets in France.
Among its other investment priorities are improving price perception in the domestic market, where it faces stiff competition from E. Leclerc and Intermarché, and making better use of its real estate assets, though Plassat said this did not involve selling them off.
The executive said the company would continue its drive to decentralize decision making in order to make regional and country store managers more accountable. Turning around Carrefour’s ailing hypermarkets business would rely largely on improving its permanent offer, he said, adding this was also true of the textiles division.
“Here too, we are starting over with a sincere approach to garments designed for frequent use, with a suitable color scheme that follows trends, and extremely competitive prices, to the detriment of what I would describe as a previous fashion experiment that had a relatively short shelf life,” he said.
Plassat was referring to Carrefour’s former mass-market fashion line, Tex by Max Azria, which was canceled in 2009 after just two years.