UPDATE 2-Carrefour reassures on China and France, rest of Europe remains tough

Thu Jul 18, 2013 6:52am EDT

* Second quarter sales in line with forecasts

* Like-for-like sales down 1.1 pct vs 2.9 pct drop in first quarter

* Market conditions for 2013 EBIT of 2.2 bln euros "reasonable" - CFO

* Shares up 2.4 pct, outperform retail sector up 0.7 pct (Adds CFO comments, analysts, share reaction)

By Dominique Vidalon

PARIS, July 18 (Reuters) - Carrefour said business was improving at its core French hypermarkets and sales turned positive in China for the first time since 2011, further reassuring investors about boss Georges Plassat's ability to revive Europe's largest retailer.

Growth in Brazil, Carrefour's largest market after France, slowed in the quarter and trading conditions remained tough in austerity-hit Western Europe, especially Italy.

Chief Financial Officer Pierre-Jean Sivignon told reporters the market consensus for 2013 earnings before interest and taxes of around 2.2 billion euros ($2.88 billion) was "reasonable", provided exchange rates in Latin American currencies did not worsen versus the euro.

"France is on the right track with continued encouraging signs in hypermarkets while the situation remains very challenging in Southern Europe and emerging markets continue to deliver good growth," Sivignon later told analysts.

Emerging markets were a bright spot, with like-for-like sales in China up 0.4 percent, after declining 2.3 percent in the first quarter, a performance CM-CIC Securities analysts said in a note was an "excellent surprise".

Carrefour said it planned a steady expansion in China - which accounted for six percent of revenue in 2012 - targeting 20 store openings a year. It expects to be present in 100 Chinese cities within three years against 70 now.

Results in Brazil remained positive, though like-for-like sales growth slowed to 7.1 percent from 10.6 percent in the first quarter, a situation Sivignon tied in part to the unfavourable timing of Easter.

By 1042 GMT, Carrefour shares had gained 2.42 percent. Its stock is up 15 percent this year, outperforming a 3 percent rise in its European sector.

The stock trades at 14.7 times 12-month forward earnings against 13.36 times for Casino and 10.85 times for Tesco, a premium analysts have tied to hopes Carrefour will deliver on its turnaround effort.

Carrefour has struggled for years in Europe, partly due to a reliance on hypermarkets as time-pressed customers shop more locally and online and buy general goods from specialists.

France, which contributes more than 40 percent of group sales, is key for investors to assess whether Carrefour can finally come to grips with its problems in Europe.

"POSITIVE MESSAGE"

Under his recovery plan, Plassat, who became Carrefour chief executive in May 2012, has vowed to cut costs, improve price competitiveness and simplify product offerings, notably in the troubled non-food sector, and boost capital expenditure to renovate ageing stores.

The world's largest retailer after Wal-Mart by sales said second-quarter sales were 20.46 billion euros, near the average 20.47 billion forecast in a Reuters poll of six analysts.

Stripping out fuel and currency effects, revenue was flat after a 0.2 percent rise in the first quarter of 2013.

"Overall we felt the message from the company is positive and core French operations seem to be moving the right way," said Citi analyst Alastair Johnston

The decline in same-store sales at Carrefour's French hypermarkets slowed to 1.1 percent in the second quarter from 2.9 percent in the first, beating average market expectations of a 1.8 percent drop.

"It's too early to call it a trend but we are seeing encouraging signs of increasing traffic at French hypermarkets, Sivignon said.

In Spain, the situation was slowly improving but it had worsened in Italy amid slumping food consumption, with like-for-like sales down 9.9 percent after a 6.5 percent fall in the first quarter. ($1 = 0.7637 euros) (Editing by James Regan and Jon Boyle)