PARIS Carrefour, the world's No.2 retailer, expects a tough 2010 and is reviewing its Belgian operations, it said on Friday, as it posted a plunge in profits due to asset writedowns and a weak performance in France.
"I don't see any significant improvement in the short term in the economic environment," Chief Executive Lars Olofsson told a news conference. "That means very clearly...that we have to rely on our own performance (to drive growth)."
Carrefour, number two behind U.S. group Wal-Mart, launched a three-year transformation plan in June to tackle underperformance in its main western European markets, including making 4.5 billion euros ($6.1 billion) of savings.
The group said on Friday it would cut 500 million euros of costs this year, up from its previous goal of 450 million, and would continue to use savings from negotiating more favourable purchasing deals with suppliers to cut prices.
It will also meet worker representatives next week to discuss the future of its Belgian operations, which have struggled for years amid intense competition from rivals like Delhaize and Colruyt.
Olofsson said his "firm intention" was to remain in Belgium, where the group employs about 16,000 people, but that it would have to be on a "redefined footing." He declined to comment further or to discuss whether there would be job losses.
Retailers across the world are struggling amid signs a tentative economy recovery has yet to boost consumer spending and fears that steps to bring down government deficits, like raising taxes, could hit confidence in the months ahead.
Wal-Mart gave a profit outlook on Thursday that disappointed analysts.
Carrefour, which has over 15,500 stores in 35 countries, said operating profit before one-off items fell 16 percent to 2.78 billion euros last year, hit by a 1.2 percent fall in sales to 85.96 billion and price cuts to lure cash-strapped shoppers.
That was in line with its own forecast, but included a 27 percent drop in French profits, which analysts said was weaker than expected and particularly disappointing given the firm beat forecasts with 590 million euros of cost cuts in 2009.
THE TASK AHEAD
"They're investing more in France than elsewhere," said Bernstein analyst Chris Hogbin. "(It) shows the task they have ahead of them."
At 1200 GMT Carrefour shares, which have outperformed the DJ Stoxx European retail index by 19 percent this year on hopes for its turnaround plan, were down 1.5 percent.
Carrefour's shares trade at about 15.2 times earnings forecasts for 2010, above Wal-Mart on 15 and Britain's Tesco on 13.2, according to Reuters data.
"We believe that Carrefour's premium for 'recovery' is unjustified," said RBS analyst Justin Scarborough, keeping a "sell" rating on the shares.
Olofsson said on the sidelines of the news conference that he believed Carrefour had "touched the bottom" in France.
Net profit plunged 70 percent to 385 million euros, hit by 1.1 billion euros of one-off charges mainly due to a write-down of assets in Italy.
That was well below analysts' average forecast of 917 million euros in a Reuters poll, but was offset by news the group is selling its 20 percent stake in Italian retailer Finiper and cancelled an option to buy the remaining 80 percent.
That would cut debt by 450 million euros and remove off-balance liabilities of 850 million, Carrefour said.
Capital spending was 2.14 billion euros in 2009 and the group said it would invest a similar amount this year.
It will focus on rolling out new store formats that have proved successful in France, like discount chain Dia, as well as expanding in faster-growing markets like Brazil and China.
The firm also reaffirmed its aim to set up a cash-and-carry business in India with a local partner in 2010.
It kept an unchanged dividend of 1.08 euros.
(Additional reporting by Noelle Mennella in Paris and Mark Potter in London, Editing by Marcel Michelson and Erica Billingham)