Carrefour Q1: challenges across Europe

Date : 12 April 2018

Discussion of Carrefour’s Q1 results will focus on the challenging market environment in France. However, its performance across Europe underlines the contests being fought by it and other retailers to maintain growth in difficult operating conditions. Given these situations the retailer’s roll out of its 2022 Transformation plan cannot occur quickly enough, despite it likely to have an effect only in the medium term.

Globally like-for-like sales contracted in majority of countries

In the first quarter, globally, Carrefour reported sales rose 2.6% to €20.8 bn, with like-for-like sales up by 0.4% (excluding petrol and calendar effects of 0.2% and 1.3% respectively at constant exchange rates). Latin America was the only region that enjoyed like-for-like sales growth, with both Argentina and Brazil benefiting from a positive performance. From other regions only Romania and Taiwan saw rises in like-for-like sales.

By reporting area, Carrefour said:

  • Group: sales including VAT reached: €20.776 bn; like-for-like sales +0.4%; total sales at constant exchange rates +2.6%;
  • France: sales including VAT reached: €9.5 bn; like-for-like sales -0.1%; total sales at constant exchange rates +0.9%;
  • Europe (excluding France): sales including VAT reached: €5.5 bn; like-for-like sales -0.8%; total sales at constant exchange rates +2.8%;
  • Latin America: sales including VAT reached: €3.978 bn; like-for-like sales +4.5%; total sales at constant exchange rates +9.1%;
  • Asia: sales including VAT reached: €1.771 bn; like-for-like sales -3.9%; total sales at constant exchange rates -4.5%.

France: hypermarkets continue to drag on performance

In France Carrefour’s -0.1% contraction in like-for-like sales (excluding petrol and calendar effects) was driven by the 2.3% fall at its hypermarkets, in like-for-like terms, and by 0.5% in total terms. At its supermarkets like-for-like sales rose 1.6% (total sales were up by 1.5%), while at its Other formats like-for-like sales rose by 3.0% (with total sales up 4.2%).

The retailer highlighted an ‘increasingly competitive environment’ generally, while specifically at its hypermarkets it said its performance had been ‘impacted by unfavourable weather conditions and operational disruptions’.

Despite pointing out these negative factors were unlikely to be replicated in the coming quarters, hypermarkets’ continued underperformance in France, from it and other retailers, suggest that the format will struggle in the short term at least. The weakness of non-food sales at the format will require further investment and / or the repurposing of further space to third party companies, which will likely cause disruption and affect sales.

Europe: competition rising in key markets

The competitive environment in France is being felt in other countries in Europe. Carrefour noted total sales in Spain rose 4.4%, ‘driven by the strong performance of the stores acquired from Eroski’, but like-for-like sales fell 0.6%. In Italy total sales fell by 0.9%, while in like-for-like terms they contracted by 3.2%. In Belgium total sales were down by 0.4%, with like-for-like sales down by 1.6%. In each of the countries Carrefour blamed similar developments: a ‘less dynamic food market’; ‘challenging comparable [performance]’ and ‘a persistently difficult consumption environment’.

While operational disruptions in Belgium are likely to be a one-off, elsewhere the competitive pressures from price-focused market leaders and the continued expansion of discounters, especially Lidl, are expected to continue. These developments will put a downward pressure on both top and bottom line growth for the retailer, giving it less room to manoeuvre and invest for the medium term.

In eastern Europe Carrefour’s performance was mixed. In Poland total sales rose 5.7%, but like-for-like sales contracted by 0.8%, despite a more positive operating environment given strong shopper spending and food inflation heading in the right direction. Carrefour said its performance had been affected by its decision not to renew some promotions and the limitation of Sunday openings. In Romania, its smallest country in Europe by revenue, total sales were up by 7.4% and by 7.7% in like-for-like terms.

Latin America limited by food deflation in Brazil

Food deflation continued to hold back Carrefour’s performance in Brazil. Quoting statistics from Instituto Brasileiro de Geografia e Estatistica (IBGE) the retailer said food deflation stood at 3.9%, 3.8% and 4.3% for January, February and March respectively. In like-for-like terms the effect of food deflation affected its retail operations more than its Atacadão format, with sales rising 0.1% and 0.5% respectively. Some of the effects of food deflation at its retail operations were offset by ‘a double-digit increase on high comparables’ for non-food ranges.

In Argentina, Carrefour said that it had enjoyed volume growth, with ‘sales broadly in line with inflation’. The retailer said that it had reached an agreement with the country’s unions to implement a cost savings plan after three years of losses. The step will see staff agree to voluntary buyouts, albeit with no visibility on how many people this would affect.

Asia: ecommerce competition continuing to limit growth in China

Carrefour reported total sales fell by 4.5% in Asia and by 3.9% in like-for-like terms. The retailer’s weaknesses in China continued to hold back its outlook in the region. Despite investment and a roll out of a turnaround programme for the country, it reported like-for-like sales fell 6.6% in China. It noted it had seen a ‘competitive environment marked by the increasing share of the ecommerce channel’.

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