ACQUISITIONS COST CARREFOUR
Byline: Robert Murphy
PARIS — Carrefour SA, the world’s second-largest retailer behind Wal-Mart, said Thursday costs related to new acquisitions resulted in full-year profits falling just below expectations and would continue to erode profits over the next two years.
Carrefour stock dropped 4.6 percent in trading on the Paris Bourse to close at $57.14. Daniel Bernard, the French firm’s chairman and chief executive officer, told reporters at a news conference here 2000 profits rose 14.9 percent, to $976.5 million, up from $850 million a year earlier but slightly below the projection made last year of 17.5 percent profit growth.
Sales in the period rose 25 percent, to $60.4 billion from $48.3 billion the previous year.
(Dollar figures have been converted from the euro at current exchange rates.)
Bernard forecast 2001 profits will grow at about 15 percent with sales rising 8 percent, to $65.1 billion. He trumpeted Carrefour’s year-and-a-half-old fusion with the hypermarket and supermarket chain Promodes as “changing the dimension of the group and opening vistas of growth that we have yet to fully explore,” but he added that the merger would continue to dent profits for another two years.
As a result, Bernard retracted a promise, made at the time of the merger, that Carrefour would double profits between 1999 and 2002.
“That objective will not be met,” said Bernard. “We have made strategic choices that will weigh on profits.” Those include Carrefour’s decision last year to acquire majority control of Italian distributor GS and Belgian chain GB, chains in which Promodes held minority stakes, said Bernard.
Last year, Carrefour also incurred costs by acquiring Greek distributor Marinopoulos, while a tough economic environment in Latin America had adversely affected business in the region. Bernard added that Europe’s mad cow scare had “substantially” reduced sales, although he declined to give detailed figures.
“We are two-thirds finished with the [Promodes] fusion, but it will take several more months to optimize results.”
Bernard said homogenizing Carrefour and Promodes back-office logistics and product offerings will account for most of the additional investment this year. He said costs related to acquisitions in 2001 will be $117 million, compared to $74.4 million last year, subtracting 4 to 5 percentage points from next year’s profits.
“The fusion has gone smoothly and largely according to plan,” he said. “We constructed a new group in 2000 and maintained the results. But we have to deal with all issues now, if we want to move into the future.”
Last year, Carrefour acquired 664 new stores and opened another 429 doors. The firm counts units in 27 countries around the world, including Argentina, Brazil, Japan, France, Italy and Spain.
“We have gained considerable market share in key regions this year,” said Bernard.
By region, sales were up 5.1 percent in France, to $31.6 billion; 51.4 percent in the rest of Europe, to $15.9 billion; 72 percent in the Americas, to $8.9 billion; and 50.5 percent in Asia, to $3.8 billion.
Meanwhile, Bernard said Carrefour was looking forward to its new retail licensing deal with America’s Cherokee family apparel brand, which is expected to produce about $2 billion in retail sales in the year ending January 2002. Carrefour plans to launch the Cherokee brand in the second half.
“We will be developing licensed products as well as some in-house product,” said Bernard. “We will move forward in a very aggressive way.”
Carrefour signed the agreement with Cherokee last October. As reported, the deal extends to Carrefour the exclusive rights to the brand in countries in which it conducts business. That excludes the U.S., where Carrefour has no retail presence.
As recently as last year, Carrefour had been bullish about Internet development and, at a shareholder’s meeting in March 2000, earmarked $1 billion for investments in the sector. However, in the wake of the dot-com meltdown, the company has become more cautious about the channel, and Bernard, on Thursday, largely glossed over the Internet in his remarks. He said the company would continue to develop its current e-commerce sites, including portals for a specialized wine, gardening equipment and beauty and health products. However, he did not outline growth prospective for the Web sites and said that Carrefour was taking a “pragmatic approach” in e-commerce.
“We need to keep our head clear in Internet operations,” he said. “They will continue to be invested in, but carefully, so that they do not eat into our brick-and-mortar commerce.”