March 6, 2020 / 9:41 AM / a month ago

French retailer Auchan cautions on virus uncertainty as revival plan lifts earnings

PARIS (Reuters) - France’s Auchan said its performance this year will be dependent on the impact of the coronavirus outbreak after 2019 results on Friday showed the first benefits of the retailer’s revival plan.

Shopping trolleys are seen in an Auchan hypermarket in Nice, France March 6, 2020. REUTERS/Eric Gaillard

In order to improve its results, unlisted Auchan has cut costs and closed or sold non-profitable stores in France, Russia, China and elswhere. It has also exited loss-making operations in Italy and Vietnam.

Auchan cautioned, however, of a potential impact of the coronavirus outbreak on its Chinese hypermarket operator Sun Art Retail (6808.HK) this year which is already facing fierce competition. About 29% of Auchan’s revenue is earned in Asia.

“The evolution of economic results ...depends on the consequences of COVID-19 on the Chinese economy and on Sun Art results, which it is too early to estimate, as well as on other countries,” the group said in a statement.

Sun Art Retail closed four stores in January and February in the Hubei region and was awaiting permission to reopen them, Auchan Retail Chairman Edgard Bonte told a news conference.

Because online sales had taken over in some stores due to the crisis and because Sun Art also kept other stores open to meet demand for basic food staples, its performance in January and February remained “good”, he added.

At home in France, customers worried about the coronavirus outbreak were stocking up on basic supplies, he said.

“We have some stores emptied out of basic staples,” he said.

Earnings Before Interest, Taxes Depreciation and Amortisation (EBITDA) at Auchan Retail reached 1.831 billion euros in 2019, a rise of 14% year-on-year and a 9% rise on a comparable basis.

The EBITDA margin reached 4% of sales against 3% in 2018 despite a decline in revenue of 1.4% to 45.8 billion euros, which Auchan blamed on France and Russia.

RUSSIA PAIN

In France, where sales fell 2% last year, Auchan Retail faces fierce price pressure from the likes of Carrefour (CARR.PA) and Leclerc and competition from Amazon (AMZN.O).

To cope with changing shopping habits the retailer is modernising its hypermarkets, accelerating its online expansion and focusing more on smaller convenience stores.

In Russia, where revenue fell 5% like-for-like last year and operating profit was zero, Auchan was losing market share with a store model no longer in line with shopping habits but Bonte ruled out exiting Russia.

Asked to comment on a report by daily Les Echos about corruption allegations involving Auchan Russia, he said: “There have been corruption issues (in the past) in Russia detected and dealt with by our economic security and if there are other cases they will be dealt with,”

Auchan Retail said it still aimed to achieve an Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margin of 6% by 2022 and for that it would need savings of 1.1 billion euros, of which 239 million were achieved in 2019.

Reporting by Dominique Vidalon; Editing by Elaine Hardcastle

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