February 27, 2020 / 4:35 PM / a month ago

Retailer Carrefour raises cost savings goal as 2019 core profits rise

PARIS (Reuters) - France’s Carrefour raised its savings target on Thursday as Europe’s largest retailer delivered cost cuts of 1 billion euros (836.4 million pounds) last year, helping it fund e-commerce investments and price cuts for customers.

It posted a well-flagged 7.4% rise in 2019 operating profit, reflecting savings in its domestic market and a robust performance in Brazil, its second-largest market after France.

“The Carrefour 2022 plan is generating solid results and sets the group on a profitable growth trajectory,” Chairman and CEO Alexandre Bompard said in a statement.

Carrefour would not commit to specific profit growth targets for 2020 or beyond because finance chief Matthieu Malige said there was a “macro environment, a societal and now sanitary environment, that is extremely volatile”.

When questioned about the potential impact on the business of the coronavirus, Bompard said Carrefour’s main concern was the health of its staff in countries like Italy where it has set up crisis teams and it was also trying to secure its supply chain.

It was too early to discuss the impact of the virus on the Italian business, which makes 12% of group sales.

“Some days you have precautionary purchasing and other days people stay at home and don’t go shopping,” Bompard said.

Regarding products coming from China: “Over the past few weeks we have imagined alternative solutions, alternative road maps..the work is being carried out following several scenarios adjusted to the daily development of the virus,” he added.

Carrefour is in the midst of a five-year plan to cut costs and jobs as well as boost e-commerce investment to lift profits and sales, as it seeks like many peers to tackle competition from major online rivals such as Amazon.

The firm set a new target to sell 300 million euros worth of non-strategic real estate assets by 2022. It hit a goal of disposing of 500 million euros of non-strategic assets by 2019, one year ahead of schedule.

Carrefour said it was now targeting cost savings of 2.8 billion euros on an annual basis by end-2020 against a previous target of 2.6 billion euros, having achieved 2 billion euros to date. It promised more savings beyond 2020.

Its 2019 recurring operating profit reached 2.088 billion euros, in line with the company’s own guidance for 2.090 billion provided in January.

Free cash flow, excluding exceptional items, rose 17% to 1.301 billion euros in 2019 while capital expenditure rose 160 million euros to 1.725 billion and should remain around that level in 2020.

Carrefour has “a solid balance sheet, one of the strongest in the industry, capable of supporting our M&A strategy with renewed self confidence,” said Bompard, adding that any such activity would be “highly selective”

FRENCH PROFITABILITY

In France, where Bompard has made reviving flagging sales at hypermarket stores a priority, operating profit rose 15.6%, also in line with company guidance. Operating margin rose to 1.6% from 1.3% in 2018.

By 1303 GMT, Carrefour shares gained 2.41%, outperforming a 2.8% decline in the CAC-40 index of French blue chips.

“Clearly the Carrefour management team are progressing at pace with the turnaround. Is it enough to get excited?” asked Bernstein analysts in a note.

“Although margins have expanded year on year, French margins are only at 1.6% and it is a long way to recover French profitability. Exceptional cost cutting tends to get harder as time goes on. Management is guiding towards more price investment in France,” they added.

Carrefour is reaping the benefit in its home market of purchasing alliances with Britain’s Tesco and France’s Systeme U.

FILE PHOTO: A Carrefour logo is seen on a Carrefour Hypermarket store in Merignac near Bordeaux, France, September 19, 2019. REUTERS/Regis Duvignau/Files

Its turnaround plan includes having fewer sales promotions in France, scaling back non-food items and putting greater emphasis on organic food.

In Brazil, where Carrefour agreed earlier this month to buy 30 stores from smaller rival Makro, operating profit rose 6.5% in 2019.

The group maintained all its other targets under its 2022 restructuring plan, including reducing by 350,000 square metres its hypermarket sales areas and having Carrefour-branded products account for one-third of sales.

Reporting by Dominique Vidalon; Editing by Carmel Crimmins and Elaine Hardcastle

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