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Carrefour Raises Cost Savings Goal, Plans To Downsize Hypers

Published on Feb 28 2019 10:00 AM in Retail tagged: Featured Post / Carrefour / Cost Savings / Overhaul Plan

Carrefour Raises Cost Savings Goal, Plans To Downsize Hypers

France's Carrefour raised its savings goal and said it would step up plans to downsize its hypermarket stores, as Europe's largest retailer delivered cost cuts of €1.05 billion ($1.2 billion) in 2018 and a higher free cash flow.

It posted a well-flagged 3.4% decline in 2018 operating profit, reflecting weakness in its domestic market that offset a better performance in Brazil, which is its second-biggest market behind France.

Carrefour shares were up 1.7% at 0853 GMT, however, as analysts welcomed its general plans to cut costs.

'Cost Savings'

"Cost savings are progressing well but not enough to reinvigorate (the company's business in) France yet," said Bruno Monteyne, an analyst at brokerage Bernstein.

Carrefour launched a five-year plan a year ago to cut costs, boost E-commerce investment and seek a partnership in China with tech giant Tencent.

It aims to boost profits and sales and tackle growing competition from US online retail giant Amazon

"For Carrefour, 2019 will be a year in which we will deepen the initiatives of the 2022 plan, to better serve our customers.

"Our encouraging results now allow us to revise upwards a number of 2022 targets," CEO Alexandre Bompard said.

Expansion Plans

The plan includes expanding into convenience stores to reduce exposure to large hypermarket stores and having a greater focus on organic products and private labels.

Carrefour recently sealed a purchasing alliance with Britain's Tesco which is expected to start bearing fruit this year.

Carrefour kept its annual dividend unchanged at €0.46 and said it now eyed cost savings of €2.8 billion by 2020 instead of the 2 billion previously targeted.

Free cash flow, excluding exceptional items, rose to €1.088 billion in 2018 from €950 million in 2017 as capital expenditures were limited to €1.611 billion.

It reported a 2018 recurring operating profit of €1.938 billion, in line with its guidance of 1.930 billion provided in January.

In France, where CEO Bompard has made reviving flagging sales at hypermarket stores a priority, operating profits 43.3% to €466 million, with the margin falling to 1.3% against 1.9% in 2017.

Competition

In France, Carrefour faces competition from the likes of Amazon and pressure from cheaper prices offered at rivals such as Leclerc.

The group's Chinese operations remained loss-making last year amid competition from local players and a buoyant online market, but Carrefour said its general performance in China nevertheless improved.

Finance chief Matthieu Malige said talks were continuing about a potential deal in which Tencent and local retailer Yonghui would take a stake in Carrefour China.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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