Carrefour warns of 2017 profit fall as new CEO faces up to challenges

New Carrefour CEO Alexandre Bompard on Wednesday pledged to boost profitability and cash flow after the world’s second-largest retailer warned 2017 operating profit could fall by around 12 percent and cut its sales growth target.

That was after the French group posted a steeper-than-expected fall in first-half earnings, as cut-throat competition hit margins at home and losses increased in Argentina.

Elsewhere in Europe, profits also declined as the integration of recently-acquired Eroski stores in Spain and Billa stores in Romania weighed on margins, but profits rose in Brazil, the company’s second-largest market after France.

In his first public comments since taking over on July 18, Bompard said he was aware he faced an “extraordinarily difficult” task at Carrefour, but was convinced it had a “great potential”.

Investors want Bompard to boost the performance of the group’s French hypermarkets, a goal that has eluded several predecessors amid competition from online rivals and price discounting from rivals such as unlisted Leclerc.

They also want him to catch up in the digitalisation of retail, notably after Amazon’s $13.7 billion bid to buy Whole Foods Market sent shockwaves through global food retailers.

In response to these expectations, Bompard on Wednesday vowed to accelerate online expansion, “breathe new life” into the French hypermarkets and simplify the group’s organisation.

He said he would provide details on his turnaround plan by the end of the year. To save cash, though, he immediately announced Carrefour would cut capital expenditure for 2017 to 2.2-2.3 billion euros from the 2.4 billion previously planned.

First-half group operating profit was 621 million euros ($740 million), down 21.5 percent at constant exchange rates. This was below the average estimate of 666 million in a Reuters poll. At current exchange rates the fall was 12.1 percent.

Carrefour predicted that at current exchange rates its full-year operating profit would decline roughly by as much as in the first half. It also cut its 2017 sales growth goal to 2-4 percent at constant exchange rates from 3-5 percent previously.

Carrefour Brazil went public last month in Brazil’s largest initial public offering in four year.

In Brazil, the profitability of the distribution business continued to increase though financial services were impacted by a change in the regulation on consumer credit, the group said.

Bompard, 44, replaced Georges Plassat, 68, who had been CEO since 2012.

In a sign of a new era, Carrefour said Laurent Vallee, 46, would replace Jerome Bedier, 61, as general secretary for the group.