Bloomberg News

Carrefour Yields on Brazil Merger, May Struggle to Boost Profit

July 13, 2011

July 13 (Bloomberg) -- Carrefour SA, the world’s second- largest retailer, said a planned Brazilian merger fell through after the deal’s main backer pulled out, and conceded it may struggle to grow profit in 2011 amid lackluster sales in France.

A decision by Brazil’s national development bank, or BNDES, to withdraw funding for a combination of Carrefour’s local assets with Cia. Brasileira de Distribuicao Grupo Pao de Acucar means that “the conditions necessary to complete the proposal have not been met,” the company, based near Paris, said today.

BNDES rejected the plan late yesterday after protests by Casino Guichard-Perrachon SA, which said the transaction would violate an agreement allowing it to become Pao de Acucar’s sole controlling shareholder in 2012. Carrefour, which has cut profit estimates three times since November, is seeking opportunities to expand in markets such as Brazil as store revamps and price cuts in France fail to revive domestic growth.

The failure of the merger “is another blow to the credibility of Carrefour’s management,” said Christopher Hogbin, an analyst at Sanford C. Bernstein in London.

Carrefour Chief Financial Officer Pierre Bouchut said on a conference call today that a decline of about 23 percent in first-half profit is a “handicap” to increasing so-called current operating income for the full year.

Second-quarter revenue climbed 1.6 percent to 22.4 billion euros ($31.4 billion), Carrefour said. The average estimate of five analysts surveyed by Bloomberg was 22.5 billion euros.

Emerging Markets

Carrefour traded up 17 cents, or 0.8 percent, to 22.16 euros as of 12:33 p.m. in Paris, after earlier falling to a two- year low. The stock has slumped 17 percent this year.

Bouchut told analysts that the company will continue to seek opportunities to grow, notably in emerging markets. Carrefour’s board would study another plan if Gama, the investment fund of Banco BTG Pactual that proposed the Brazilian transaction last month, came up with one, the CFO said. The French retailer doesn’t know of any such plan, he said.

Carrefour, which last week spun off its Dia discount chain on the Madrid stock exchange, said operating income fell to about 760 million euros in the first half, mainly because of weakness in France, where superstore sales in the period were “disappointing.” Profit on the same basis fell in Europe and showed “solid” growth in emerging markets, Bouchut said.

“We do have a handicap to meet our initial objective of a progression of our current operating income from one year to another,” Bouchut said. Carrefour will present a plan to turn around operations in France, which will focus on near-term priorities, and full-year guidance on Aug. 31, he said.

Action Plan

“Carrefour is devising and implementing an action plan with the objective of attaining the group’s 2011 target of a progression in sales and operating income,” Chairman and Chief Executive Officer Lars Olofsson said in a statement.

The language Olofsson used points to “a weakening of the previous June target reiteration, suggesting that this is now more an ambition,” James Grzinic, an analyst at Jefferies International, and his colleagues wrote in a note to clients.

Like-for-like sales, excluding petrol and adjusted for calendar impact, fell 1 percent last quarter in France, Carrefour’s largest market, as revenue growth in smaller stores failed to offset a decline in superstore sales, the retailer said. French superstore sales dropped 3.3 percent on the same basis. First-half operating profit fell 35 percent in France, Bouchut said, repeating an estimate disclosed last month.

By contrast, sales grew 10 percent in Brazil during the quarter. Carrefour is improving purchasing decisions, cutting overheads and “stopping the bleeding” in 28 underperforming Brazilian superstores, converting some of them to the Atacadao brand, Bouchut said. The retailer should post a “significant increase” in operating income in Brazil in 2011, the CFO said.

Though Carrefour has been reorganizing its legal structure and operations in China to allow for a possible listing of it there, “we are still far from having achieved it. Therefore there is nothing in the near future in this respect,” he said.

--Editors: Paul Jarvis, Marthe Fourcade.

To contact the reporter on this story: Andrew Roberts in Paris at

To contact the editor responsible for this story: Celeste Perri at

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