Carrefour’s More-Detailed 2012 Results: EBIT Margins Down, Management Raises Capex Plans


After previously releasing fourth-quarter and full-year sales, Carrefour CA provided more-detailed financial results that showed further but more modest consolidated operating margins declines, consistent with consensus estimates. As one of the world’s largest retailers, Carrefour’s scale warrants a narrow economic moat. Carrefour is investing heavily in price to stem recent domestic market share losses but we do not forecast like-for-like sales in the eurozone to normalize around 2% until 2014.

Investors looking to build a position in the Carrefour turnaround story against the backdrop of prolonged government austerity measures in Europe should seek a high margin of safety and have a very long time horizon. The company operates about two-thirds of its stores in high debt/GDP countries.

As expected, 2012 consolidated operating margins from ongoing operations fell to 2.7%, about 11 basis points lower than the 2.8% EBIT margin in 2011. Carrefour managed to keep expenses as a percent of revenues flat, despite only companywide 1.1% like-for-like sales, but that was not enough to offset the 11-basis-point gross margin decline. We forecast operating margins to trough in 2014 and improve thereafter. Operating margins declined or failed to expand across all regions with the exception of Latin America, where EBIT margins improved to 4.3%, 40 basis points higher than last year.

As has been the case with competitors such as Casino, Latin America has been an area of strength. We assume a 30% tax rate for ongoing operations and exclude one-time gains from asset sales, which put 2012 diluted earnings per share at EUR 1.45 in our model. On an IFRS basis, the company delivered EUR 1,288 billion in net income, or about EUR 1.88 in EPS. Carrefour raised its capital expenditure plans to between EUR 2.2 billion and 2.3 billion, but our model already assumed capex in that range for 2013.

Overall fourth-quarter revenue increased 0.8% to EUR 22.9 billion. Once again, the company reported negative but slightly improving like-for-like sales in France, slowing comparable-store sales in Europe (excluding France) and Asia, and strong revenue gains in Latin America. Excluding petrol and the impact of currency exchange rates, fiscal fourth-quarter like-for-like sales fell 0.8% in France, better than the 1.5% decline in the prior quarter.

Carrefour’s “Low Price Guarantee” initiated last May helped comp trends in France, particularly in food. Nonfood sales remained weak. But like-for-like sales (excluding gas and exchange rates) declined 3.9% in the rest of Europe, which was deterioration from the third-quarter 3.3% drop. Comparable-store sales also declined further in Asia to down 3.9%, compared with the 3.1% third-quarter decrease. However, Latin America posted a very strong 11.2% like-for-like increase, which was an acceleration from the prior quarter’s 10.1% increase.


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