Bloomberg News

Carrefour Falls Most Since August After Cutting Forecast

October 13, 2011

(Updates with closing share price in second paragraph.)

Oct. 13 (Bloomberg) -- Carrefour SA, the world’s second- largest retailer, fell the most in almost two months in Paris trading after lowering its 2011 profit forecast for the second time in three months amid a slump in Europe.

The stock fell 5.9 percent, the steepest drop since Aug. 18. So-called current operating income will decline 15 percent to 20 percent this year, the Boulogne-Billancourt, France-based company said today, having in August forecast a retreat of 15 percent.

“The overall economy and consumer sentiment has become more uncertain and it has impacted discretionary spending,” Chief Financial Officer Pierre-Jean Sivignon said on a conference call with analysts. The retailer widened its profit guidance “as a matter of prudence,” the CFO said.

It’s the fifth time in the past year that Carrefour has predicted lower profit. The grocer is adjusting prices and remodeling its largest stores in a program dubbed “Reset” aimed at countering competition in France. Rival Casino Guichard-Perrachon SA yesterday reported a 21 percent jump in third-quarter sales, helped by growth in Latin America and Asia.

Carrefour shares dropped 1.06 euros to 16.85 euros at the close in Paris.

Third-quarter sales declined 0.6 percent on a like-for-like basis, excluding gasoline and adjusted for calendar effects, Carrefour said. Total revenue was little changed at 22.8 billion euros ($31.4 billion). Analysts had expected 22.9 billion euros.

Fifth Forecast Cut

The profit revision “does nothing to help the company’s reputation for forecasting given that the previous guidance was issued only six weeks ago,” James Anstead, an analyst at Barclays Capital, said in an e-mailed note. The figures “offer little obvious cause for optimism,” wrote the analyst, who has an “equal weight/positive” recommendation on the stock.

Risks to Europe’s economic outlook have increased as governments struggle to contain the sovereign-debt crisis, the European Commission said this week. France may enter a recession next year, as growth in the euro-area economy slows to 0.1 percent, Goldman Sachs Group Inc. predicted Oct. 3.

Economic conditions are likely to remain challenging, particularly in southern Europe, Sivignon said. Carrefour cut the price gap with competitors by 1 percentage point in the third quarter, though the retailer doesn’t want to lower prices to the same level as smaller rival LeClerc, he also said.

Third-quarter sales at Carrefour stores open at least a year fell 2.3 percent in France and decreased 2.2 percent in the rest of western Europe, excluding gasoline and adjusted for calendar effects, the company said. French hypermarket sales on that basis fell 4.4 percent, led by a 9.6 percent drop in non- food sales. The stores’ food sales declined 2.6 percent.

Latin America

“French sales were worse than expected, and the first signs of the Reset plan are visible as the company reduces promotions and loses traffic,” said Jaime Vazquez, an analyst at Banco Santander in Madrid, referring to Carrefour. “The commercial repositioning is impossible without pain.” Vazquez has a “hold” recommendation on the shares.

Same-store sales in so-called European growth markets declined 4.1 percent, led by Greece, where sales fell 9.4 percent. In Latin America, where a proposal to merge Carrefour’s Brazilian unit with Brasileira de Distribuicao Grupo Pao de Acucar collapsed in July, same-store sales rose 7.4 percent. Asian like-for-like sales declined 1.6 percent.

--Editors: Paul Jarvis, Jerrold Colten.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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