PARIS (Reuters) - Shares in Carrefour (CARR.PA) slumped to a five-year low after the world’s second-largest retailer issued a profit warning, highlighting the scale of the challenges its new boss faces in the cut-throat French retail market.
Analysts said they expected Alexandre Bompard, who joined in July, to take tough decisions to turn around a weak business in France, including cutting costs at the struggling hypermarkets while stepping up investment to accelerate online expansion.
Late on Wednesday, Carrefour, Europe’s largest retailer and second in the world only to Wal-Mart (WMT.N) by sales, posted a steeper-than-expected fall in first-half earnings.
Carrefour also warned that its 2017 operating profit could fall by around 12 percent.
Carrefour shares were down 15 percent at 16.52 euros in mid-session trading, its lowest level in around five years, and with the stock set for its biggest one-day percentage fall on record.
Shares in French rival Casino (CASP.PA) also fell 4.4 percent.
Barclays analysts, who have an “equal-weight” rating on Carrefour, said the poor first-half performance “illustrates the group’s structural challenges, including its strong exposure to the competitive and irrational French food retail market.”
In France, which accounts for 47 percent of sales and 44 percent of operating profit, Carrefour’s struggling hypermarkets still dominate but face fierce price competition from online rivals and from more agile rivals such as the unlisted Leclerc.
This led Carrefour to engage in a more aggressive commercial strategy in the first half, which weighed on its French margins.
Deutsche Bank analysts, who retained a “sell” rating and cut EPS 2017/18 forecasts by 8 percent, cautioned that further price cuts might be needed in France in a climate which finance chief Pierre-Jean Sivignon described as “highly competitive”.
“With its recent price investment, we believe the group repositioned French hypers from a 6 percent price gap with Leclerc to 5 percent, which still might prove too difficult for Carrefour to gain or even stabilise its market shares,” said the Deutsche Bank team.
The 44-year-old Bompard joined last month from French retailer Fnac-Darty (FNAC.PA), with a solid track record as a tough cost-cutter and a digital expert.
He told investors on Wednesday he would “re-shape” the French hypermarkets arm and boost its online expansion as Carrefour needs to catch up in the digitalisation of the industry, with Amazon’s (AMZN.O) $13.7 billion bid to buy Whole Foods Market having shaken up the sector.
Bernstein analysts said that while Bompard’s initial comments were encouraging, there were other, deeper problems.
“The problem at Carrefour can’t simply be prices. Carrefour France has lost touch with want consumers really want,” they wrote.
JP Morgan cut its rating on Carrefour to “neutral” from “overweight”. Analysts at Jefferies downgraded the stock to “hold” from “buy”, while HSBC cut it to “reduce” from “hold”.
“Carrefour lacks momentum, has lost its scale advantage, and already has low profitability. The outlook is challenging,” HSBC said.
Barclays cut its EPS forecasts by 18 percent for 2017 and its price target to 20 euros from 22 euros.
Additional reporting by Helen Reid; Editing by Keith Weir and Adrian Croft