3Q18 Trading Update

Carrefour reported that group comparable sales excluding automotive fuel were up 2.1% in 3Q18, accelerating meaningfully from 0.9% in 1H18 and beating the consensus estimate of 1.6% recorded by StreetAccount. Sales in France and Latin America came in ahead of expectations. Including sales tax, total sales at current exchange rates were down 2.8% in the quarter. By region, Carrefour reported the following comparable sales performances at constant exchange rates:

• France comparable sales were up 1.6% versus consensus of 0.8% and were up strongly from (0.1)% in 1H18. Comps were flat at French hypermarkets versus the consensus estimate of a slight decline. Supermarket comps were up 2.6%, well ahead of the 1.4% consensus estimate. Convenience and other formats grew comparable sales by 4.7%.
• Comps for Europe excluding France were down 1.5% versus consensus of a 1.3% decline. Spain comps were down 2.7% and Italy comps were down 4.4%, both of which were below expectations.
• Latin America comp sales were up 9.7% versus consensus of 9.3%. Brazil comps were up 5.1%, in line with expectations.
• Asia comps were down 2.8%, broadly in line with expectations. China comps were down 4.8%, while Taiwan comps were up 1.4%.

Management noted that the improved momentum in France was supported by “an improved commercial performance in all formats and better market trends” and pointed to strongly accelerating growth in Brazil. The company is implementing a “Carrefour 2022” strategy, and management noted advances that included:

• An acceleration in changes to in-store commercial propositions, including reductions of selling space in hypermarkets, with some space in French hypermarkets being allocated to preparing online orders; the launch of trial shop-in-shop outlets for electronics and appliance retailer Darty; and the development of private labels.
• More than 300 store openings in convenience formats since the start of the year, of which 126 were opened in 3Q18.
• The implementation of a new purchasing alliance with Système U and Tesco.
• Further productivity and cost-reduction initiatives.

Outlook

Management said that the momentum in 3Q18 reinforced its confidence in the Carrefour 2022 plan. The company did not provide quantitative guidance for FY18 but did confirm the targets under the Carrefour 2022 plan, which include:

• Annual cost reductions of €2 billion by 2020.
• The disposal of nonstrategic real estate assets for €500 million by 2020.
• €5 billion in food e-commerce sales in 2022.
• €5 billion in organic product sales in 2022.

For FY18, analysts expect Carrefour’s revenues to fall by 2.6%, to €76.8 billion, and for the company’s EBIT to slide by 6.6%, yielding an EBIT margin of 2.4%. According to S&P Capital IQ, consensus calls for the company to report a 4.0% fall in adjusted net income for FY18.