December 1, 2010 / 10:01 AM / 10 years ago

Carrefour shares sink after yet another warning

PARIS (Reuters) - Shares in Carrefour (CARR.PA) fell 10 percent on Wednesday after Europe’s biggest retailer trimmed its 2010 profit goal for the second time in six weeks, raising concern over the credibility of its predictions and the ability of its managers to control internal risks.

The world number two by sales behind U.S. group Wal-Mart (WMT.N) said late Tuesday it was expecting operating profit of 3 billion euros ($3.9 billion) for the year on a pro-forma basis.

That was around 130 million euros lower than previously forecast.

The French group tied the adjustment to escalating charges in Brazil, where it is trying to revive flagging sales at its hypermarkets, and tough trading in France and southern Europe.

“This again worsens the market sentiment on the stock, after the poor communication since mid-October ... The group has lost its credibility in terms of guidance, and in terms of management of internal control,” Exane BNP Paribas analysts said in a note.

At 0950 GMT, Carrefour shares were down 8.35 percent at 31.93 euros, off a session-low of 31.32 euros, the biggest loser on the French CAC-40 index .FCHI.

In mid-October, Carrefour had already shaved its 2010 profit goal, citing one-off charges in Brazil of 180 million euros.

A final audit of the situation in Brazil revealed one-off charges tied to mismanagement would be as high as 550 million.

“This latest profit warning reinforces our skepticism of Carrefour’s long-term financial targets especially as an increasingly competitive environment in France will make it harder for Carrefour to retain the benefit of its cost cutting initiatives,” said Bernstein analyst Chris Hogbin, cutting his share price target to 36 euros from 40 euros.

Carrefour, which makes over 40 percent of its sales in France, said it has faced fiercer price competition from rivals like Auchan, E. Leclerc, Casino (CASP.PA) since September.

In September, Carrefour unveiled a 1.5 billion-euro revamp of its European hypermarkets as part of a three-year plan aimed at tackling underperformance in its main western European markets and delivering 4.5 billion of savings.

The revamp plan, which aims to more than double profit by 2015, was initially greeted with enthusiasm by investors even though some had cautioned Carrefour, which makes over 60 percent of its sales from hypermarkets, had set the bar very high.

“We now believe it unlikely that the market will buy into 2013 and 2015 guidance until tangible improvement is seen in reported numbers. This is unlikely to happen until later next year,” said Evolution Securities analysts in a note where they downgraded Carrefour to “neutral” from “buy” and cut their target price to 35 euros from 48 euros.

Carrefour’s management insisted on Tuesday that Brazilian woes did not threaten the group’s long-term guidance and it was confident of fixing problems there quickly.

But analysts were not so sure.

“The Brazilian charges raise questions both about the underlying profitability as well as the broader management of Carrefour’s international operations,” Bernstein’s Hogbin said.

Reporting by Dominique Vidalon, Editing by Mark Potter

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