* Shares fall, among worst stocks on Paris market
* Targets 2017 sales growth of 3-5 pct at constant forex
* Targets lower 2017 capex, further free cash flow growth
* CEO in favour of internal candidate to succeed him (Recasts with CEO comments, fund manager, updates shares)
By Dominique Vidalon
PARIS, March 9 (Reuters) - Carrefour disappointed investors with its first drop in annual operating profits since 2012 on Thursday, although the boss of the world’s second-largest retailer said he was “optimistic” about the future and his turnaround strategy.
Shares in Carrefour were down 4.5 percent, the worst stock on Paris’ benchmark CAC-40 index, after it reported a worse-than-expected 3.8 percent drop in operating profit, with its core French business particularly weak.
“The company is still not delivering on Plassat’s stated ambition when he took over in 2012 to rebuild margins along those of the best performers in the sector,” said Gregoire Laverne, a fund manager at Roche Brune Asset Management.
Georges Plassat, whose term as chairman and chief executive ends in May 2018, has presided over some signs of a recovery at Carrefour, which makes 73 percent of its sales in Europe and 47 percent in France, since taking over as CEO in 2012.
But the company’s stock is down around 5 percent so far in 2017, having fallen 14 percent last year.
There is speculation about who will succeed Plassat, who in his first public comment on the issue said on Thursday he was in favour of a candidate to replace him from within Carrefour.
This would avoid an “abrupt” change in strategy, he said, adding that Carrefour’s board and its key shareholders had the final say in the matter.
Plassat could not say if Carrefour would have picked a candidate by its annual shareholders meeting on June 15, but he did say Carrefour was ready to float its Carmila property unit and its Brazilian arm this year.
This would raise funds to expand key parts of its business and Carrefour pledged to grow sales and free cash flow after reporting that in France its operating profit fell 13.4 percent, with margins down by 40 basis points to 2.9 percent.
Shares in French retailer Casino also came under pressure this week after analysts said Casino’s profit growth forecast for 2017 was not as robust as they had hoped, highlighting the pressures faced by the sector.
Carrefour’s Plassat has focused on price cuts along with an expansion into smaller convenience stores, while also renovating its chain of hypermarkets, starting in France.
Yet while Carrefour has made good progress in most European countries and in Brazil, its second-largest market, it has lagged behind on its French hypermarkets.
Chief Financial Officer Pierre-Jean Sivignon said Carrefour was targeting better results at its French Dia stores for 2017.
Outside of France, Carrefour posted stronger performances in Spain, Italy and Brazil, although China is still loss-making. ($1 = 0.9492 euros) (Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta/Keith Weir/Alexander Smith)