Carrefour SA, the second world's largest retailer, fell the most in almost two years in Paris trading after cutting its earnings forecast, saying Brazil's depreciation will be more than three times higher than expected.
the contribution of call activity, a measure of operating profit will amount to around 3 million euros (3.9 billion) in 2010, the Paris-based company said yesterday afternoon, cutting a previous forecast around 130 million euros. fees once in Brazil of 550 million euros, compared to an estimate made in October of 180 million euros, and now have non-operating revenue.
The forecast revision is the second in two months from Carrefour, which has forecast higher sales and earnings until 2015, because the updates large areas of Western Europe. Lars Olofsson, who joined as chief executive last year, aims to win more European customers by reducing prices, offering more than the products of the store and promoting and advertising discounts.
"This is a blow to the credibility," wrote Dave McCarthy, an analyst at Evolution Securities in London, in a note. "While we believe that management is taking the right actions in the restructuring of the company, the results are not likely until later in 2011 at the earliest." McCarthy cut its rating on Carrefour to "neutral" from "buy" and lowered its price target to 35 euros from 48 euros per share.
Carrefour declined to € 3.53, or 10 percent to € 31.33, the steepest intraday decline since December 18, 2008. The action was trading at € 32.30 as of 13:57
2013, 2015 targets is not affected
The retailer's objectives for 2013 and 2015 will not be affected by "the previous mismanagement" in Brazil, Olofsson said in a conference call yesterday. Carrefour aims to raise the contribution of the activity to 5.2 million euros in 2013 and 6.4 million in 2015 compared with 2.7 billion euros in 2009, the chief executive, said in September.
"We now believe that it is unlikely that the market will buy in 2013 and 2015 guidance shows tangible improvement in reported numbers," wrote McCarthy Evolution.
The reduction in earnings forecast weak sales came from large areas of Brazil, a performance worse than expected in France in September and adverse economic conditions in Italy, Greece and Spain, CFO Pierre Bouchut said on the call yesterday . The measure of operating income also fell by 50 million euros following the sale of operations in Thailand last month.
Brazil charges
Carrefour replaced its management in Brazil and hired KPMG LLP in October to audit its operations there after a poor performance of large areas of the unit. The retailer has also commissioned an independent investigation to determine who may be responsible for the need for accounting changes include adjustments to inventories and depreciation of assets in the unit.
"We are confident that we can fix the situation quickly to return to a sustainable, profitable revenue in Brazil," said Bouchut.
Brazil charges consist of 110 million euros for depreciation and inventory adjustments, 280 million euros of provisions for labor disputes and tax, 35 million euros of vendor discounts unrecoverable, 75 million of depreciation of assets, and 50 million of accounting adjustments, Bouchut said.
French market share
Carrefour has lost market share in France since September after competitors opened more stores, while price deflation "is clearly pushing margins," Olofsson said yesterday. Call on an equal footing, the retailer is gaining market share and considerable reduction of average costs "we must be able to grow our margins in 2010 compared to 2009 in France," he said.
"An increasingly competitive environment in France and Europe's economic weakness cited by the company suggest Carrefour may have difficulty maintaining the benefit of cost reduction initiatives," wrote Christopher Hogbin, an analyst at Sanford C. Bernstein in London, in a report today. He maintained his "market perform" on the stock and lowered his price target to 36 euros per share from 40 euros.
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