France's major retailers are taking significant hits from domestic markets on their bottom lines amid a persistently weak consumer environment in Europe's second-largest economy.
Shares in Carrefour SA (CRRFY) tumbled more than 4% Thursday after Europe's biggest food retailer's full year earnings figures disappointed due to declining profits and margins in its home market of France and a larger than expected loss in Asia. The results mirrored issues those of french rival Casino SA (CGUSY) , which earlier this week also posted weak returns on its French operations, suggesting that fierce competition is continuing to squeeze margins.
Carrefour's recurring operating profit in France fell to €1.03 billion, down 13.4% year-on-year, on sales of €35.88 billion ($38 billion), down 1.1%, despite a massive overhaul of the group's hypermarket operations and a shift toward higher-margin convenience formats.
"In 2H16 this implies French operating margins were down about 80 basis points," noted Goldman Sachs analyst Rob Joyce. "This is the largest half yearly decline since 1H11."
"In France, in a difficult competitive environment, the Group continued to roll out its multi-format and omnichannel strategy with the completion of the transformation of DIA stores to Carrefour banners and the integration of Rue du Commerce," Carrefour said in it earnings statement.
Carrefour shares fell 4.8% in Paris to €21.62 by mid-day Thursday, hitting their lowest mark since early December.
Carrefour CFO Pierre-Jean Sivignon said the dip in French margins was also due to the cost of transforming the recently acquired, and loss making, network of 400 Dia supermarkets and due Carrefour's continued investment digital operations.
"There was a big impact from the digestion (of Dia) in the fourth quarter of 2016, but 2017 will be better. It takes a year for a store to find its customer base and its pricing," Sivignon told analysts at his company's results presentation. "Digital investment will continue to increase, and we expect sales to increase with that."
In Asia, and notably China, where Carrefour is battling for market share against the world's biggest retailer Walmart (WMT) - Get Report , Carrefour posted an operating loss of €58 million, down from a profit of €13 million last year. Sales in Asia fell to €6.2 billion, down 7.3% in euro terms and down 3.6% at constant exchange rates.
"We have to await the restoration of the Chinese economy but I am convinced that China will be an excellent business for us," said Carrefour CEO Georges Plassat. "This is really the bottom of the trough, China is now bouncing back."
There was better news for Carrefour elsewhere. European sales, excluding France, rose to €20.1 billion and recurring operating income climbed to €712 million, up 1.8% and 25.5% respectively. Results out of Latin America, and notably Brazil, were also encouraging with sales climbing to €14.5 billion, up up 16.2% at constant exchange rates though a sharp fall in Brazil's and Argentina's currencies reduced that gain to just 1.5% in euro terms. Recurring income from Latin America was €711 million, up just under 1% in euro terms.
Carrefour said it expected sales to increase by 3% to 5% in 2017, the company does not provide earnings forecasts. A dividend of €0.70 per share in cash or shares will be paid on July 4, with shares going ex-dividend on June 21.