Morningstar | Carrefour Reports In-Line 3Q Sales, Cuts FY2018 Capex; Shares Up 8% but Still Lower Than Our FVE
Carrefour reported a third-quarter 2018 sales update with like-for-like and group sales up 2.1% and 2.7%, respectively, at constant exchange rates, in line with our expectations. While we maintain our no-moat rating, we intend to update our model for a larger-than-expected adverse currency effect from Latin America and a lower-than-expected capital budget for the year (change of guidance), and we do not expect a material impact to our EUR 17.90 fair value estimate. The firm is continuing the implementation of its transformational plan, with management reiterating guidance and confirming consensus (including fiscal 2018 EBIT).Notably, Carrefour announced that its efforts to increase the productivity of investments have resulted in a lower capital expenditure budget (excluding cargo) for the year, estimated at EUR 1.7 billion-EUR 1.8 billion versus EUR 2 billion guidance previously. Although we welcome such initiatives, we note that Carrefour, as part of its transformational plan, has already slashed its investment budget by 20% to EUR 2 billion from EUR 2.4 billion, despite raising digital investments by a factor of 6 times to EUR 560 million from EUR 90 million per year. This could translate into even less investment dedicated to offline assets such as hypermarkets and supermarkets, which in the longer term could hurt those stores' attractiveness relative to rivals, further diluting the company's competitive standing.
Regional sales were mixed, with France up 1.6% (versus down 0.1% in first half), aided by supermarkets (up 2.6%) and convenience (up 4.7%), while European sales were down 1.5% (similar to the first half), driven by Spain's (down 2.7%) and Italy's (down 4.4%)Â underperformance. Latin America continued to drive growth for the group, up 9.7% (up 6.4% in the first half), with Brazil (more than 80% of segment sales) increasing sales by 5.1%, supported by Atacadao positive momentum. In Asia, trends are improving but are still negative (down 2.8%).
Carrefour is a distribution group based in France. Co. is engaged in retailing business, primarily in Europe (France, Belgium, Spain, Italy, Poland, and Romania); Asia (China, India, and Taiwan); and Latin America (Argentina and Brazil). Co. offers a variety of fresh produce, products from local suppliers and major-brand products. Co. operates Hypermarkets, Supermarkets, Convenience stores and Cash & Carry stores, as well as food and non-food e-commerce sites. Co. also offers services such as financial and insurance services, travel, entertainment, after-sales services, and leasing of commercial vehicles. As of Dec 31 2013 Co. operated 10,105 stores under its brand.
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