August 31, 2018 / 1:35 PM / 23 days ago

Restructuring at France's Auchan Retail weighs on first-half earnings

PARIS (Reuters) - French retailer Auchan said on Friday that costs from its three-year restructuring plan to boost sales and profits weighed on its first-half results, driving core profit down by more than a fifth.

FILE PHOTO: The logo of French retailer Auchan is pictured at company's hypermarket in Moscow, Russia, May 19, 2017. REUTERS/Maxim Shemetov/File Photo

Unlisted Auchan Retail however said stabilizing sales in its core French market, a purchasing alliance with retailers Casino (CASP.PA), Metro and Dia and a recent deal with Alibaba (BABA.N) in China gave it confidence in its future prospects.

Auchan Retail faces fierce price pressure in its home market from the likes of Carrefour (CARR.PA) and Leclerc as well as competition from online players such as Amazon (AMZN.O).

In response, France’s sixth-largest retailer by market share launched a plan in 2017 to modernize its hypermarket stores, accelerate online expansion and focus more on smaller convenience stores.

Earnings before interest, tax, depreciation and amortization (EBITDA) slumped 22.8 percent to 619 million euros ($721 million) in the first half compared with a year earlier, reflecting 112 million euros in restructuring costs, Auchan Retail said in a statement.

Total revenue reached 25.1 billion euros, flat at constant exchange rates, and down 3.2 percent at current rates.

“The results are challenging. We nevertherless managed to stabilize global revenue. We are going in the right direction. I am confident and in a serene mood,” Auchan Retail head Wilhelm Hubner told a conference call on the results.

Amid encouraging signs, Hubner noted that revenue at French hypermarkets rose 0.2 percent in the first half while sales in France were flat after declining for five consecutive years.

PREPARING THE FUTURE

In a bid to cut costs, Auchan formed a purchasing alliance in June with domestic rival Casino (CASP.PA) and Germany’s Metro. The alliance, which was recently joined by Spanish discounter Dia is aimed at helping retailers cut prices and expand own-label ranges. It should be operational for the 2019 price negotiations with suppliers.

Carrefour and Britain’s Tesco (TSCO.L) set up a similar alliance in July.

China, where Auchan makes 28 percent of revenue, is the group’s second largest market after France, and a key area for expansion.

Last November, Chinese e-commerce giant Alibaba (BABA.N) announced a HK$22.4 billion ($2.85 billion) investment in a stake in Sun Art (6808.HK), China’s top hypermarket operator, in which Auchan has the biggest stake.

Sun Art and Alibaba have launched a home delivery service of fresh products and consumer goods in less than one hour within 3 kms (two miles) of a store. All Sun Art stores in China will offer the service by the end of 2018.

In June, Sun Art reached a deal with Suning, a Chinese electronic products maker, and plans to have Suning sections in all its stores by September 2018, Hubner said.

Auchan Retail is part of Auchan Holding, which also includes the Ceetrus property business and the Oney banking business.

Oney said on Friday it was wanted to speed up its development and was currently looking at the possibility of forming “strategic commercial and equity capital partnerships”.

($1 = 0.8584 euros)

($1 = 7.8492 Hong Kong dollars)

Reporting by Dominique Vidalon; Editing by Adrian Croft

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