Weak performance expected in France: We forecast continuing weak top-line
performance in France with 1Q like-for-like sales ex petrol and calendar down by -1.0%
at the hypermarkets and up by +0.7% at the supermarkets. Although Carrefour
admittedly continued to lose market shares during the period, this weak performance
should be viewed in the context of demanding comps (LFL ex. fuel/petrol +2.1% at the
hypers and +2.5% at the supers in 1Q15). However, we are confident that the changes
implemented by the group in its commercial strategy will gain traction among French
customers at some point. Although Carrefour remains the third cheapest banner in
France, its price differential with Leclerc and Géant Casino hypermarkets is now at its
narrowest level in the past 12 months.
Top-line growth still dynamic in Southern Europe: We expect 1Q performance in
Spain and Italy will confirm the positive 4Q trends with LFL sales up by 3.0% in both
countries. In Spain, the group remains well positioned to benefit from the improving
economic environment, while its turnaround in Italy is under way. However, we believe
that Carrefour’s performance in Belgium will remain weak (LFL -0.5%) as the group is
impacted by Delhaize’s commercial initiatives to regain market share.
Mixed performance expected in Emerging Markets: We forecast another solid
performance in Brazil despite the continuing difficult environment with like-for-like
sales up by 9.0% ex-calendar. The group continued to benefit from its more favorable
format mix as well as the difficulties of its main competitors. However, we do not
expect any significant improvement in China, where Carrefour’s LFL sales will likely
decline again by -10.0% in 1Q despite undemanding comps.
Overweight rating reiterated with a €31 price target: Although Carrefour does not
offer the best earnings momentum in the sector this year and there are limited positive
catalysts in the short term, we struggle to justify the 20% discount at which it is trading
to its peers (FY16E P/E of 14.0x vs 17.7x for the sector average). Carrefour remains a
well managed company with a strong balance sheet and its multi-format strategy is
promising. Carrefour will release its 1Q sales on 15th April at 6:30am UK time
(conference call at 7:30 – dial in: +33 1 70 77 09 58, no password).