Casino/French strikes: red herring
French supermarket blames unrest for poor sales, but this story whiffs of one of its fish counters
Crisis for some is an opportunity for others. French retailers Casino and Fnac Darty both blamed public sector strikes for poor fourth quarter sales and lower profits. Shares in both companies fell as much as a tenth on Friday. But Casino’s story whiffs of the fish counter at one of its supermarkets.
Strikes are a handily recurrent scapegoat for corporate woes in France, as bad weather is in England. The current round of unrest is a response to plans by the Macron government to consolidate public pensions and raise retirement ages.
But protests by the country’s Yellow Vest movement in the final quarter of 2018 were far more disruptive. They were national in their impact. The current strikes mainly affect Paris and other big cities.
The sales of Casino, controlled by Jean-Charles Naouri, should have rebounded since gilets jaunes protests were at their height. Instead, they are flat. As a result, expected profit growth from French retail has been revised down to just 5 per cent from 10 per cent previously.
Moreover, the loss of an estimated €25m of operating profit from a decline of €80m of sales is oddly big, say analysts at Bernstein. If market share losses are accelerating, then a target of €500m of free cash flow a year from French retailing is in doubt.
That would make it harder for the business to service large debts. Mr Naouri controls the group through “Breton Pulleys”, a chain of heavily-leveraged holding companies. These are popular with French tycoons keen to maximise control at minimal cost.
They are unpopular with bondholders, who want Casino to reduce borrowings. With creditors at holding company Rallye rejecting a repayment proposal earlier in the week, the requirement for cash is becoming more urgent.
It is easy for Casino to pass the buck to strikers for weak fourth-quarter profits. But under-investment and poor management may also share responsibility. Casino has been criticised for the opacity of its earnings and balance sheet structure. Its scramble for cash is another sign of the group’s souring prospects.