PARIS — As other retailers struggle to ride out a sharp slowdown in consumer spending in Brazil, Carrefour SA reported on Friday that its thriving business in the Latin American nation contributed to a 1.3 percent rise in recurring operating income to 726 million euros, or $811 million, in the first half.
This represented a rise of 2.6 percent at constant exchange rates.
The world’s second-largest retailer behind Wal-Mart Stores Inc. recorded one of its strongest overall growth rates since 2008 in the six months ended June 30, which saw operating profit almost triple in European countries, excluding France, as the region recorded its first organic sales growth in two years.
Carrefour chief executive officer Georges Plassat, who has overseen a wide-ranging turnaround plan since he took over in 2012, said the group was reaping the results of its drive to diversify with new formats like convenience stores, which has taken the onus off hypermarkets to deliver results.
“Carrefour is back to its fundamentals. It has also returned to the type of growth that was a little absent during several years. It’s back. I think it’s a growth that is sustainable, and it’s a growth that is geographically diversified. It’s a strength,” he told a news conference in Paris on Friday.
The retailer has pulled out of countries where it did not have a leadership position or a prospect of achieving sizable market share. In parallel, it has revamped activities in Europe by cutting prices, diversifying stores and streamlining internal operations.
Carrefour said organic sales, excluding petrol, rose 2.9 percent in the first half, as reported.
Group share of net profit, adjusted for the capital gain linked to the creation last year of real estate investment firm Carmila, rose 17.5 percent to 233 million euros, or $260 million, in the first half. Dollar rates are calculated at average exchange rates for the period in question.
France, Carrefour’s core market, posted operating profits of 321 million euros, or $358.6 million, down 20.9 percent versus the same period a year earlier. This represented a decline of 2.2 percent when adjusted for the integration of hard discount chain Dia, an increase in the tax on retail sales areas and the transfer to Carmila of rental income from shopping malls, the retailer said.
The operating margin in France was down 60 basis points to 1.8 percent in the first half, and stable on a pro forma basis. Plassat predicted it would improve in the second half, but emphasized the retailer would not sacrifice its price image in the pursuit of fatter margins.
“We have to keep pressure on our promotional approach and have good prices everywhere,” he said.
In the rest of Europe, operating profit was up 244.1 percent to 122 million euros, or $136.3 million, mainly driven by the continuing recovery in Spain and an improvement in Italy. The operating margin rose 90 basis points to 1.3 percent, with all countries showing progress.
In Latin America, operating profit was up 20 percent at constant exchange rates to 296 million euros, or $330.7 million. Stripping out the impact of exchange rate variations — principally the depreciation of the Brazilian real and the Argentine peso — the figure was up 26.3 percent, reflecting “excellent” like-for-like sales in Brazil and Argentina, according to the retailer.
The operating margin was up 30 basis points to 4.1 percent. Plassat was bullish on prospects for Brazil, despite forecasts that the country is heading for its worst recession in 25 years, noting that the country branch benefited from having a local shareholder, tycoon Abilio Diniz.
In December 2014, Diniz purchased a 10 percent stake in Carrefour’s Brazilian unit, raising his stake to 12 percent in June.
Plassat noted that Carrefour has started opening convenience stores in Brazil as well as in China, where household spending is also slowing. Operating profit in Asia totaled 50 million euros, or $55.9 million, down 40.2 percent at current exchange rates and 49.5 percent when stripping out foreign exchange swings.
Operating margin fell 120 basis points to 1.4 percent in the region.
“China, I believe, is probably at the peak of its difficulties,” Plassat said. “We are taking advantage of this sensitive time to reorganize the company.”
Carrefour is revamping its supply chain in China with the opening of logistics warehouses, as part of its plan to increase the in-store availability and traceability of its products and support its burgeoning e-commerce business. It is dividing its operations into six territories and closing underperforming stores.
Plassat reckoned the hypermarket format still had potential, noting that Carrefour has opened 15 hypermarkets in China since the start of the year, mainly in city centers. “China will remain a growth engine, clearly,” the executive predicted.
Carrefour maintained its outlook for 2015, which calls for planned total investments, including Dia, of between 2.5 billion euros and 2.6 billion euros, or $2.74 billion to $2.85 at current exchange; increased free cash flow; and maintaining a BBB+ rating.
Carrefour bought or opened a total of 1,276 units in the first half, including 26 hypermarkets, 117 supermarkets and 1,133 convenience stores, according to its chief financial officer Pierre-Jean Sivignon.
Plassat said the retailer would continued to open stores in all the countries where it operates, though he indicated that it did not plan to enter new markets. He also hinted that Carrefour was working on new technologies to drive its online business, though he did not go into details.
“It is in progress and it will happen at the right time — the right approach and the right investments,” he said. “Carrefour is still in a cycle of transformation, and I think that will continue.”
Plassat appeared back on form following a medical leave of almost three months earlier this year, trading barbs with both members of his team as well as analysts and reporters. He eluded any questions about how the company would be run going forward.
Shareholders in June renewed Plassat’s mandate as administrator of the firm, opening the way for him to be named for a second term as ceo, and he suggested then that Carrefour would in time be run by a devolved management team.