By Alex Wynne
with contributions from Joelle Diderich
 on March 9, 2017
A Carrefour hypermarket in Changzhou, China.

PARIS — Despite a sharp decline in its net income in 2016, hit by store remodeling and weak results from its core domestic business, Carrefour SA believes its ongoing transformation to a multiformat, multichannel model will bear fruit looking forward.

“I’m convinced we are on the right track,” said Georges Plassat, chairman and chief executive officer of Carrefour, the world’s second-largest retailer after Wal-Mart Stores Inc., at a conference for investors and journalists.

He described how the retailer has over the past year invested more in digital and big data in order to benefit its whole portfolio in the long term. “Carrefour is an innovative company, and we have relaunched this spirit,” he said.

The market did not necessarily agree, sending Carrefour shares down 5.17 percent to 21.54 euros, or $22.74 at current exchange in mid-afternoon trading.

Carrefour said it aimed to grow sales by 3 to 5 percent at constant exchange rates in 2017. Market conditions allowing, it plans to list its property arm Carmila and its activities in Brazil this year.

Carrefour posted net sales of 76.6 billion euros, or $84.8 billion, in 2016, up 2.7 percent at constant exchange. “This is our strongest increase since 2012,” said chief financial officer Pierre-Jean Sivignon. “It is our fifth consecutive year of organic sales growth.”

Carrefour said it would decrease its capital expenditure slightly this year, to approximately 2.4 billion euros, or $2.53 billion at current exchange, compared with 2.5 billion euros, or $2.77 billion, last year.

The retailer said 29 percent of that sum was invested in store remodeling, largely of Dia outlets in France acquired in 2014 that the firm has progressively been converting to Carrefour banners, 21 percent in expansion and 18 percent in IT and omnichannel.

“Two-thousand sixteen was a year of investment in France,” explained Sivignon, citing the conversion of more than 400 Dia stores, e-commerce acquisitions including Rue du Commerce and investment in big data as having weighed down results.

While the share of store remodeling is set to fall, there is still work to be done in this domain, Plassat said. Some 35 percent of Carrefour’s French store footprint still needs to be remodeled, he said, while aging Atacadão stores and hypermarkets in Brazil are also due for updates.

Hypermarket sales are falling and Carrefour plans to decrease the format’s share in its business to less than 50 percent by 2020, compared with 58 percent back in 2012 and 51 percent last year, to focus on smaller stores. Yet Plassat said he still believes in the model’s potential.

“I believe the hypermarket has a future,” he said, adding that it could serve as a laboratory for experimentation with new concepts and services. “We need to bring theater to our bigger stores,” he said.

Plassat suggested that shopping centers could be turned into lifestyle spaces by adding services like educational workshop facilities and gyms.

Through Carmila, founded in 2014 in conjunction with investment partners, Carrefour owns 194 shopping centers adjoining its hypermarkets in France, Spain and Italy.

Plassat said the company’s recent investment in e-commerce sites like Rue du Commerce and in big data will allow it to propose a broader offer across the board, especially in geographic areas where it does not have a hypermarket presence, for example by adding tablets in smaller stores to allow consumers to order products for in-store delivery, which is especially relevant in non-food categories.

“E-commerce will bring all our operations together, increase average spend and attract a younger clientele,” Plassat said. The firm estimates that its multiformat customers spend 1.8 times more than those that shop exclusively in its hypermarkets.

Carrefour plans to triple its e-commerce sales by 2020, when it is targeting four billion euros, or $4.22 billion at current exchange, in online sales, compared with 1.2 billion euros, or $1.32 billion, in 2016.

Further acquisitions are also in the cards, Plassat said, without identifying targets or a time frame. “We will complete our networks with further strategic operations,” he said.

Carrefour’s net income fell 7.4 percent in 2016, as ongoing challenges in France and investment dented its profits. Adjusted for exceptional items, it fell to 1.03 billion euros, or $1.14 billion, in 2016 from $1.11 billion, or $1.23 billion, the previous year.

In France, recurring operating income fell 13.4 percent year-on-year to 1.03 billion euros, or $1.14 billion.

In the rest of Europe, the company’s profitability grew 25.7 percent at constant exchange to 712 million euros, or $787.9 million, and increased 3.7 percent to 711 million euros, or $786.9 million, in Latin America, driven by Brazil.

Carrefour registered an operating loss of 58 million euros, or $64.2 million, in Asia, as it continued to transform its stores in China faced with changing shopping habits there, compared with recurring operating income of 13 million euros, or $14.4 million, a year earlier.

“I think we have hit the bottom of the curve in China, there is a form of acceleration emerging again,” Plassat said. “China should not be seen as a worry, but still as a formidable opportunity as the new middle class emerges.”

Operating margin decreased to 3.1 percent in 2016 from 3.2 percent the previous year. Recurring operating income stood at 2.35 billion euros, or $2.60 billion, down 3.2 percent at constant exchange rates versus 2015. All dollar rates are calculated at average exchange rates for the period in question.

Plassat refused to be drawn into questions concerning his succession — his mandate as ceo comes to an end next year, and reports have been circulating in the French media about internal disagreements as to who should take over.

“I am not involved in the choice of my successor. The shareholders are managing that with the necessary harmony,” he said. “My preference is always internal solutions, because they avoid violent changes in strategy.”

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