Carrefour’s shares rise on latest market update

<p>French retail heavyweight Carrefour’s shares went up (currently up around 4.6%) following the company’s latest market update. The company’s relatively decent performance does point towards […]</p>

French retail heavyweight Carrefour’s shares went up (currently up around 4.6%) following the company’s latest market update. The company’s relatively decent performance does point towards progress in its turnaround efforts.

Despite a slight drop in revenue at €74.9bn – driven by weak exchange rates – Carrefour reported a 5.4% year-on-year increase in operating profit at €2.2bn.

That was partly thanks to decent performance in domestic business, which more than offset the decline in the rest of Europe. Carrefour’s revenue in France grew around 1% at €35.4bn and operating profit saw a healthy rise of 29.9% at €1.2bn.

Meanwhile, the company – which increased dividend by 7% (now at €0.62) – managed to nudge down its net debt by some €200m: now at a notable low net debt to earnings before interest, depreciation and amortisation of 1.1x.

Relatively new CEO, Georges Plassat, is seemingly leading the company in the right direction.

A few years back, tough domestic competition, among other factors, saw the company faced with declining sales and shrinking margins in its overall European business (73% of 2013 revenue). Then, a series of arguably unfruitful turnaround attempts and a string of CEOs followed.

Mr Plassat took the helm some two years ago and set about another turnaround of the company, based on a three-year horizon. That included cutting costs and debt, maintaining low prices as well as investing to revamp its domestic business.

Now, among other investments for which Carrefour is looking to spend up to €2.5bn, the company plans to continue efforts with growth in emerging markets – Brazil and China in particular – and a sale of a stake in its Brazilian business has also been mooted. While those expansion plans have merit, the additional risks that come along with them are there to be seen.

Still, the company is undoubtedly on the right track but the current buzz surrounding its latest update may arguably be a tad overdone. Indeed, given that Carrefour’s stock has already soared around 50% over the last two years, it’s reasonable to think that decent progress in the company’s recovery efforts was already expected.

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