PARIS (Reuters) - Carrefour (CARR.PA) is stepping up its multi-billion euro investment in store improvements, hoping to cement a turnaround as yearly results showed it was already benefiting from signs of a recovery in consumer spending across Europe.
Posting higher 2014 profits as a revamp of its European hypermarkets started to pay off, the world’s second-largest retailer said it would invest between 2.5 billion euros ($2.8 billion) and 2.6 billion in 2015 on renovating and expanding stores, including those of recently acquired French chain Dia.
This compares with 2.4 billion spent last year on renovating stores in France and Brazil and improving IT and logistics.
“Our turnaround plan and good cost control are bearing fruit,” said Chief Financial Officer Pierre-Jean Sivignon. “In Europe we are beginning to see signs of a recovery, notably in Spain. We are very confident on the potential of Europe.”
The comments chime with figures on Wednesday showing euro zone retail sales grew a faster than expected 1.1 percent in January compared with December, their fastest rate since May 2013.
Carrefour shares hit a four-year high and were 3 percent higher at 30.59 euros by 9.57 a.m. ET, outperforming a 1 percent rise in their European sector .SXRP.
Its results also echoed figures from Belgium’s Delhaize DELB.BR as shares across the sector rose on hopes for a Europe-wide consumer recovery. Analysts said Carrefour could also benefit in France from signs a price war is abating.
Carrefour, which makes 73 percent of its sales in Europe, has suffered from a reliance on the hypermarket format it pioneered as customers shift to more local and online shopping, trends that have caused headaches for British retailers, in particular market leader Tesco Plc (TSCO.L).
In response, its boss Georges Plassat has cut costs and prices, accelerated expansion into convenience stores, refreshed stores and given greater autonomy to managers, beginning in France.
Carrefour, which ranks second globally to Wal-Mart Stores Inc (WMT.N), said 2014 operating profit rose 6.7 percent to 2.39 billion euros, in line with a Thomson Reuters poll average of 2.38 billion.
The performance reflected improved profitability at its core French and European businesses and robust growth in Brazil, though Asia remained weak amid slowing consumption and a government crackdown on lavish spending in China.
The company also targeted a further increase in free cash flow this year and said Plassat would be back at the helm by the end of April after recovering from an operation.
“We expect Carrefour to reap the benefits of continued strong execution and an improving competitive/consumer backdrop in Europe,” said analysts at brokerage Jefferies.
Carrefour also said it would be ready to go ahead in 2015 with a stock market flotation in Brazil, its second-largest market after France, if market conditions allow.
For 2015 plans also include expanding into online and convenience in China and Brazil.
Carrefour’s investment plans contrast with Tesco, which halved spending to 1 billion pounds against the nearly 5 billion it spent as recently as 2008-9.
Carrefour said its operating margin in France, which accounts for 47 percent of revenue, rose by 20 basis points to 3.6 percent of sales.
Editing by James Regan and David Holmes