London-based Bernstein Research has said that while French retailer Carrefour has enjoyed ‘three years of improvement’, its reliance on hypermarkets could hamper its growth going forward.
In a briefing note, Bernstein said that ‘great work has been done’ in turning around Carrefour over the past few years, adding that ‘consensus believes that a further 11% EPS growth is possible for the next four years.’
However, it adds that Carrefour still enjoys 85% of its sales from hypermarkets ‘and is showing limited signs of moving away from this skew; while many companies in our coverage are either shrinking the hypermarket footprint (Casino is now only 46% Hypermarkets, Sainsbury's is subletting space to Argos etc.) or diversifying away (through convenience, discount or online), Carrefour remains largely committed to the big box format’.
Bernstein says that it believes that ‘short term momentum’ is with Carrefour stock, ‘but this will end’, adding that it ‘would not take much’ for the retailer to slip back.
‘Our view is that while Mr Plassat is in charge, investors will give him credit as a visionary (and for the turnaround work done so far) that FCF [free cash flow] will ultimately arrive,’ it added.
‘However if he left, the next management team might be judged on more fundamental criteria (like FCF) and then we will likely see that high FCF yields and continued sales/EBIT momentum from hypermarkets cannot both be achieved.’
© 2015 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.
