Three profit warnings in a row since the June strategic plan and the emergency sale of all hypermarkets/supermarkets even before the arrival of Mr Kretinsky have highlighted the precariousness of Groupe Casino’s recovery.
All eyes are now on 2024 and what Casino will look like in 12 months’ time.
Refocus On Premium, Urban Retailing
The current context in France is working in Casino’s favour and should help the group to sell off all its hypermarkets and supermarkets, despite being underperforming and underinvested.
All competitors are in an acquisitive mode in order to continue to expand their network in a country where the recent 'zero net soils artificialization' law makes it almost impossible to open a new store from scratch; and ensure that no other competitor takes over the underperforming Casino store in their own catchment area and turns it around to their detriment.
With Cdiscount and GPA also on the divestment list for the coming months, Casino would eventually be more than halved to a €7 billion sales French retailer focused on premium urban stores in the Paris region, around Lyon, in the Alps and on the French Riviera with Monoprix, Franprix and its franchised convenience stores.
The potential new group – likely to abandon the Casino name and rebrand – would be able to present an underlying EBIT profitability and stop burning cash.
Monoprix To Become The Next (Costly) Hot Topic
With Casino relieved of its historical burdens, Monoprix will move to the top of Casino and Mr Kretinsky’s priority list. Despite targeting more affluent consumers and being less exposed to the most aggressive competitors, Leclerc and Intermarché, Monoprix's offer has become irrelevant... if not indecent.
How can Monoprix justify a 15% premium compared to other urban supermarkets and a 30% premium compared to Leclerc with crumbling stores that have not been renovated for years, deprived of sufficient in-store staff and equipped with constantly defective check-out tools?
Before plunging into a spiral of more structural market share losses, Monoprix needs to cut food prices by 10% on both national brands and private labels (amounting to €300 million), increase in-store staff by 10% (amounting to €40 million) and embark on a wave of complete store remodelling over three years (amounting to €250 million per annum, assuming a €1,000/sqm investment).
Brace For Another Dilution Round
The proceeds from the sale of the hypermarkets/supermarkets should only cover the transfer costs (which should not be underestimated, as they were in 2020 with the sale of Leader Price to Aldi), and the restructuring costs associated with the downsizing of the headquarters and the closure of logistics platforms, while also repaying part of the debt tied to the hypermarkets/supermarkets.
As the proceeds from the future sale of Cdiscount and GPA are likely to be very limited, we still expect Mr Kretinsky to be cash-strapped when he takes over in March 2024.
Further shareholder dilution then looks unavoidable, even on a narrowed and apparently profitable scope, to finance the costly refurbishment of the Monoprix business model.
Mr Kretinsky may have brought a generous Christmas present to Casino shareholders this year by cutting the rotten hypermarkets/supermarkets branch, but we must not lose sight of the poisoned gift that awaits shareholders under the Christmas tree in 2024 – a likely dilution of €1 billion via a cash injection led by Mr Kretinsky, or a public capital increase.
Article by Clément Genelot, Vice President Equity Research | Retail & E-commerce, Consumer, Brands & Retail, Bryan, Garnier & Co.
