Carrefour SA shares fell the most on record after France’s biggest retailer warned the second half of the year will be as tough as the first, giving new Chief Executive Officer Alexandre Bompard an even bigger challenge to turn around the company.
The surprise warning and a share-price plunge of as much as 15 percent mean Bompard has his work cut out in rejuvenating Carrefour’s sprawling hypermarkets, which sell everything from food to garden furniture but are struggling with price competition and inroads by online retailers. The 44-year-old took over as CEO from Georges Plassat in July, joining the company from French media and electronics retailer Fnac Darty SA.
“Carrefour France has lost touch with what consumers really want,” Sanford C. Bernstein analyst Bruno Monteyne said in a note.
At Fnac, Bompard gained a reputation for his digital expertise as he steered the company into e-commerce. The shares more than tripled under his watch as Bompard launched new services for online ticketing and video streaming as well as spearheading a merger of electronics and media retailers. Those skills are sorely needed at Carrefour, which has struggled to develop its online offering as Amazon.com Inc. and other digital specialists make inroads.
Before Bompard’s arrival, the French company acquired several online retailers, including organic food provider Greenweez and technology and home-goods marketplace Rue du Commerce. Still, Carrefour’s supermarkets have lost their leading position in the domestic market to Leclerc, whose 21.1 percent share in the July 10 to Aug. 6 period topped Carrefour’s 20.3 percent, according to researcher Kantar Worldpanel.
“We expect the company to undergo a major transformation under Mr. Bompard’s lead,” Raymond James analysts Cedric Lecasble and Anthony Guglielmo said in a note, adding that they foresee a focus on overhauling the company’s non-food operations. “In the meanwhile, we anticipate negative earnings momentum to continue.”
Carrefour Chief Financial Officer Pierre-Jean Sivignon warned that full-year operating profit will decline a similar amount as the 12 percent drop in the first half, speaking on a call with analysts late Wednesday.
The decline in earnings was a surprise because Carrefour previously reported second-quarter sales that beat estimates as its French supermarket business was boosted by sunny weather. Higher volumes in food failed to offset the effects of price competition, and the operating margin in France, which accounts for nearly half of the company’s sales, fell 70 basis points.
Recurring operating income fell 12 percent at constant exchange rates to 621 million euros ($740 million), the Paris-based retailer said in a statement Wednesday. Analysts had predicted 674.6 million euros.
“Our industry was highly competitive and promotional and clearly this is having an impact on our profitability,” Sivignon said on a call.
In an effort to shore up profitability by reining in costs, Carrefour cut its forecast for investment to a range of 2.2 billion euros to 2.3 billion euros from a previous estimate of 2.4 billion euros.
Carrefour shares were trading at 16.68 euros as of 10:30 a.m. in Paris, cutting the market value to 12.9 billion euros.