Carrefour warns on 2011 profit as Europe struggles

Carrefour, Europe's No1 retailer, warned 2011 profits would slump 15 per cent as it cuts prices in a bid to reverse market share losses and battles an "increasingly challenging" economic environment.

Shares in the French group, which had already issued four profit warnings in less than a year, dropped 4 per cent in early Wednesday trading after it reported an unexpected first-half net loss, hit by €884 million of one-off charges, mainly linked to impairments for its Italian business.

"Yet another one (profit warning) and yet another plan," said JP Morgan Cazenove analysts, referring to Carrefour's repeated attempts to reinvent itself in recent years.

"Given Carrefour's history on lack of delivery on its guidance, then a more aggressive stance could be taken by the market," RBS analyst Justin Scarborough added, predicting even deeper cuts in 2011 profit forecasts.

A string of European consumer-related companies including Ahold and Heineken have missed earnings forecasts recently as shoppers have cut spending amid rising prices and austerity measures.

Carrefour, the world's No 2 retailer behind US group Wal-Mart , has conceded it has also made mistakes, such as raising prices in its main French market ahead of rivals like E Leclerc and Intermarche.

The group, with more than 9,500 stores in 32 countries, reported a well-flagged 22 per cent drop in first-half current operating profit to €772m.

It pledged to improve its competitive position, but also indicated this would hit earnings in the short-term.

"We have taken the decision to favour sustainable value creation over short-term gains," Chief Executive Lars Olofsson said, adding the group would prioritise price cuts over promotions.

At the time of its previous profit warnings in July, Carrefour had said it still hoped to grow full-year operating profit, though analysts had cut their forecasts to around €2.3-2.4 billion, or a decline of about 11 to 15 per cent.

Olofsson is under pressure after launching a three-year turnaround plan in June 2009, which has so far shown few lasting benefits.

Carrefour's shares have plunged 40 per cent this year, hitting a more than 10-year low of €16.675 this month.

However, Olofsson appears to retain the support of key shareholder Blue Capital, an alliance of luxury tycoon Bernard Arnault and US group Colony Capital. In June he was handed the role of chairman to add to his position as CEO.

Analysts are also keen for Olofsson to spell out his plans for Carrefour's fast-growing emerging market businesses after a failed attempt last month to merge its Brazilian operations with that of a local rival.

Olofsson told reporters the group would continue to roll out its new hypermarket format, Carrefour Planet, which he said was continuing to outperform older stores.

It would also rein in capital spending in particularly difficult markets, like Greece and Italy, and seek to make more cost savings.

First-half underlying operating profits dropped 40 per cent in France, where Carrefour makes over 40 per cent of its sales, and were down 33 per cent elsewhere in Europe. They were up 27 per cent in Latin America and 11 per cent in Asia.

At 0740 GMT, Carrefour shares were down 3.6 per cent at €17.975, lagging a 0.6 per cent rise in the Stoxx Europe 600 retail index .