Carrefour SA (CA) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Carrefour Q3 2026 Sales Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Mr. Alexandre Bompard, Chairman and CEO; and Mr. Matthieu Malige, CFO. Please go ahead.

Thank you. Good evening, everyone, and thank you for joining our Q3 sales call. I was not originally scheduled to join this call. But given the scale and the seriousness of the events in France over the past few days and their consequences for our business and our teams, I felt it was important to speak to you directly. I want to begin by addressing what happened over the weekend. Thousands of stores across France were attacked, products worked and for some stores, equipment was destroyed. As Chairman of the French Retail Federation, I'm following the situation across the sector and its consequences for retailers throughout the country. As we speak tonight, the situation keeps evolving. After Saturdays demonstration on lootings, there were more riders on Sunday than new threats yesterday. Carrefour was directly and strongly affected and 50 of our stores were hit on day 1. Many were loaded and the damage is considerable. In this context, our first concern is the safety of our colleagues, franchisees and customers. Many of our teams and partners faced deeply distressing situations. I want to express my solidarity with them. Our store teams have once again shown great courage and dignity. We are supporting them and helping the affected stores resume operations as soon as it is safe. We are also working with our teams and franchise partners on insurance coverage and the claims process. The direct costs are only part of the impact. stores that were not physically damaged are also affected, lower customer footfall in many areas, shorter opening hours because of curfews, precautionary closures on access difficulties of disrupting trading. This is continuing in some areas at the beginning of this week. Going forward, we will have to increase our operating costs notably in areas such as security and specific logistics for damage stores. As you understand, the situation is unprecedented on the level of uncertainty is very high on operations and trading. The government announced security measures, including curfew at the local level. new demonstration announced notably for October 24 on November 5. So it's impossible to get a clear picture of the situation. This happens after a cycle of more difficult consumption since mid-September on the back of higher energy prices, social work from high school students on the deteriorated climate on the 2027 budget with more taxes and less subsidies. We are entering a crucial period for retail. The final month of the year traditionally account for more than 1/3 of Carrefour France full year recurring operating income. We expect the severity of the security situation all over France to further weaken consumer confidence on way significantly underspending while imposing increasing operating costs just to keep our stores open. Our Q3 commercial momentum was solid and in line with expectations. However, the events of the past few days have changed the outlook for the final month of the year. We estimated it was our responsibility to revise our 2026 target as set out in our press release. These revised targets keep showing profit growth versus 2025 but at a lower level. Carrefour has a solid business model, a strong local footprint and committed teams. Our response will be driven by clear execution priorities. We will continue to strengthen our price competitiveness to support customer value and loyalty, accelerate the development of our convenience format on e-commerce and pursue our EUR 1 billion cost savings plan with discipline. We will also keep advancing Carrefour 2030 notably strong digitalization and the expansion of our growth formats. We are confident that these priorities will help us manage the current disruption deliver our revised 2026 objectives and continue building the group's long-term growth. I will now leave Matthieu to comment on our Q3 performance and explain the revised targets in detail.

Thank you, Alexandre, and good evening to all of you. Let me start with a few key highlights from this Group sales increased by 2.3% like-for-like, following plus 2.1% in H1. Growth was driven by food sales, up 2.7% and the positive contribution from the 3 core countries. These results came in a context of solid consumer momentum in Europe over the summer despite a rebound in general inflation weighing on purchasing power whilst food inflation remained contained. . In Latin America, consumption remained under pressure and was notably penalized in Brazil by high interest rates. In France, sales grew by 1.2% like-for-like with further improvements in price competitiveness. In Spain, sales rose by 2.1% supported by volume growth and a strong momentum in convenience. In Brazil, sales grew by 1.4%, with Atacadão accelerating its volume trends way above the market. We continue to roll out our Carrefour 2030 priorities. Carrefour kept expanding the growth formats over the quarter, notably with 89 new convenience stores in France and Spain, and 2 Atacadão openings in Brazil. Vusion Solution is now deployed in 28 hypermarkets. E-commerce grew by 18% in Q3 and we also continue to deliver our cost savings plan in line with our EUR 1 billion target for 2026. Overall, Q3 sales were solid and in line with our expectations. As Alexander has just explained, recent events in France have changed the outlook for the final months of the year. We have, therefore, adjusted our 2026 financial targets. I will explain the revised numbers in more detail at the end of the presentation. Let me take you to our Q3 numbers with the sales bridge in Slide 3 of the presentation. Group sales reached EUR 22.7 billion, up 3.9% on a reported basis. Like-for-like sales grew plus 2.3%, in line with H1. The scope and M&A effect was negative 0.7% over the quarter, mainly reflecting the sale of 6 hypermarkets in France, in line with the commitments made to the competition authority following the acquisition of Cora and Match. Petrol contributed 1.3 percentage points, while the calendar effect was negative 0.2%. Foreign exchange had a positive impact of plus 1.2% over the quarter, mainly reflecting the appreciation of the Brazilian real. Let me now turn to France. Sales grew by 1.2% like-for-like in Q3 with positive growth across all formats. The food retail market continued to grow, both in value and volume, and our food sales were up 1.6%. Our price investment continued to improve our competitiveness and our price image contributing to a 2-point increase in Net Promoter Score. Trading was stronger over the summer than we saw a slowdown in September. In this context of slowdown on consumption, the Carrefour anniversary campaign did not deliver the usual uplift this year. Former Cora stores grew by 7.3% like-for-like after 5% in Q2 and 2.3% in Q1. Match stores were up 3.4%. This shows continued progress. The commercial effects of last year's pricing and assortment reset gaining momentum. Cora is continuously winning customers and market share. We look forward to accelerating the dynamic further in Q4 despite the new context. E-commerce grew by 15% with further market share gains in drive and home delivery. We opened 54 convenience stores during the quarter. Finally, yesterday, we announced that we had signed an agreement for the acquisition of Codifrance. This transaction is part of our Carrefour 2030 plan for France which aims to strengthen our market share partly through tactical M&A, consolidate our leadership in the convenience segment and improved our EBIT margin. Let's now turn to Slide 5 on Spain, where the market remained solid and mainly driven by volume growth. Carrefour Spain continued to post solid sales growth, up 2.1% like-for-like in Q3, in line with the previous quarters. Momentum remained positive in both food and nonfood with sales up 1.8% like-for-like in food and 3.2% like-for-like in nonfood. Convenience continued to be a strong growth format with like-for-like sales up 13% and continued network expansion with 35 openings over the quarter. Commercially, our omnichannel strategy is also paying off with e-commerce up 8%. Finally, customer satisfaction continued to improve with NPS up 2 points in Q3, driven by our sustained commitment to price leadership in the country, supporting consumer purchasing power. Now turning to Slide 6 and our operations in Brazil. The Brazilian market remained challenging over the quarter. High interest rates and weaker consumer sentiment continued to weight on purchasing power. Despite a more favorable comparison base as volumes declined mid-single digits in Q3 last year, volumes kept declining this quarter in both Cash & Carry and Retail markets. Against this backdrop, Carrefour Brasil posted plus 1.4% like-for-like sales growth with food sales growth accelerating to 2.2% from 0.7% last quarter. This was notably driven by Atacadão, which grew 2% like-for-like, accelerating from 0.5% in Q2 and negative 1% in Q1. Atacadão's volume trends clearly improved, and it accelerated its market share gain. The adaptation of Atacadão's commercial model with a simplified assortment targeted commercial initiatives and the rapid rollout of the bolus private label with 300 SKUs now available, all this resonated work with customers. The Retail segment putted food sales up 1.5% like-for-like. As in previous quarters, nonfood sales were penalized by the discontinuation of the nonfood e-commerce activity. which was not profitable. Sam's Club delivered plus 3.6% like-for-like growth driven by positive volumes and an increase in active members. Moving to the other country segments on Slide 7. In Belgium, Carrefour recorded the third straight quarter of improvement in like-for-like sales growth at plus 2.3%. And outlining a solid commercial momentum driven by positive volumes. Market share was up 20 bps over the quarter, supported by a successful combination between investment in price competitiveness, promotions and loyalty benefits. In Poland, the market was penalized by food deflation for the first time in 10 years. Sales were down minus 4.3% like-for-like. In Argentina, sales grew by 24% (sic) [ 24.2% ] like-for-like despite continued pressure on consumer purchasing power, we consolidated our market leadership and gained market share in both value and volume. Volumes have remained positive since June, clearly outperforming the market. Now let's turn to Slide 8, which outlines the adjustments to our financial targets for the year 2026. The [indiscernible] security situation in France has deteriorated and is expected to remain under pressure for some time. We expect it to weigh significantly on consumption and disrupt operations in our stores through the end of the year, which is a quicker period for our activity. Against this backdrop, we have decided to pose or delay a number of works in our stores to be totally focused on operations and servicing our customs Consequently, our CapEx envelope for the year is reduced by EUR 100 million to EUR 1.6 billion from EUR 1.7 billion. In this context, the group is adjusting its guidance for 2026. We continue to expect growth in recurring operating income. We now expect operating margin to increase by 0 to 15 basis points compared with our initial target of 25 basis points increase. We now expect adjusted earnings per share to be stable or show slight growth compared with 2025 versus our previous expectation of high single-digit growth. Finally, we expect net free cash flow to slightly decrease compared with 2025 whereas we had previously expected slight growth. I will not comment on Page 9 with key takeaways, which summarizes what we just discussed and is here for your reference. Thank you for your attention. Alexandre and I am happy to take your questions.

[Operator Instructions] And your first question today comes from the line of Frederick Wild from Jefferies.

So first of all, I just wanted to start by passing on my heartfelt sympathies to you and your colleagues in France for everything.

Sorry, Frederick. Your line is very bad. Is there any way you can speak louder. So we can hear you well.

Can you hear me now any better?

It's much better. Thank you.

Great. So apologies but I was just saying I hope everyone is okay out there with you and your colleagues in France. But to move on to my questions. First of all, help me understand the scale of the downgrade to EPS that's just going on there in terms of what -- how you are thinking about sales evolving in France in Q4, how much of the extra security costs are going to impact this year and all the other moving parts? Just so we get a sense of what's actually driving that [indiscernible]. And my second question is just a bit more about the Brazil and Spanish consumer dynamics, whether, how they trended in September, whether you've seen any meaningful change in tumor behavior in either of those markets? And then if I tie final third 1 in there. Could you just help explain a bit why France slowed down in September? And whether this was being led by Cora and whether the sort of carried on absent and the other disruption in the market.

Thank you, Frederick. Let's come to your first question to try to quantify the financial consequence of the events. So the events are very recent, as you know, and they are continuing. But -- what we hear analyze and you also to our experience of the last days on previous social situation, even if this 1 is unprecedented. The impact of several components. First, the direct costs from a stolen or destroy goods, damage to store and equipment additional security, weaker cost and lost sales when stores are closed. So that's direct costs. Secondly, there are broader operational effects starting with top line. We anticipate both a deterioration in the consumption dynamics due to the model of the customers. at the moment of the year where there are events, particular events like Black Friday or of course, Christmas Day. So we see a deterioration in the consumption dynamics with lower customer traffic. There are also shorter opening hours before of perfuse that impacts top line, precautionary closures. 4 hours ago, I had to close a new commercial center suddenly, and that's the new reality today of our activity and access difficulties including at stores that were not physically damaged. So second, work is top line. Third is we are also monitoring possible supply disruption and the additional resources needed to protect our seats, We cannot yet provide a detailed breakdown by cost items. There are still many moving parts on a lot of uncertainty. But these are the main parts. Cost top line, disruption, additional resources to open a store. And it's a continuing process, and we have seen continued turmoil since last Saturday. There were riots on Sunday. It was not expected at all. On Monday, we were threatened, there are new security measures every day, taken by the government, including, for example, curfew in Paris, and other mechanism. And there are new national demonstration announced 24 October, which means Saturday, November 5, so at this point, things appear to be deteriorating with no visible sign of real improvements, and that's exactly what we are. And when we but on our current assessment, we estimate the maximum financial risk at around EUR 200 million on recurring operating income compared with our previous objective. If it is 0.15 of increase, it will be EUR 80 million of loss of recurring operating income. And the maximum risk is EUR 200 million on recurring operating income. So that's the -- that's where we are today with our analysis and with what is happening every day. Your second question is on Brazil and Spain. What I can say is that the dynamic in the 2 countries is positive on, I would say, strong in September for different types of reasons in Spain, the macro dynamic is very good. And we are good in this dynamic. So we continue to have a positive momentum including September and including the beginning of October. Brazil is related to other facts. The dynamic of the market remain difficult, due to interest rates and negative volume for Cash & Carry. But we gained a lot of market share, particularly on Atacadão, and we have this positive momentum of this positive growth of $0.02 for Atacadão in the Q3. And the good dynamic, particularly good dynamic in September and that's what we see at the beginning of October. So dynamic in September in the 2 months is very positive for different reasons in Spain and Brazil and continuing in October. The last question was what happened in September. So I think Matthew has explained that quite precisely. What we have seen is a good summer time. And after mid-September, we have begun to see a slight declared decline of the consumption. And the Carrefour anniversary pain that takes place every year in September was below last year performance on the back of high comps, and of course, it was related of the first sign of the slowdown of the consumption in September due to the situation due to the students events and so on. So that's what we have seen in September.

Your next question from the line of Izabel Dobreva from Morgan Stanley.

Regarding the CapEx guidance, I understand that a lot of this is coming out of France. Could you help us understand, should we expect you to step that up next year as hopefully the situation normalizes, meaning that the total CapEx envelope is unchanged in the multiyear view. And then my second question is on [indiscernible]. Could you update us on your outlook there? Because the Nielsen, which has just come out this evening shows the market share is down 50 basis points in Hyper for P10. So could you maybe comment on that figure in your expectations for the evolution going forward?

Thank you, Izabel. Thank you very much. So well, we need to refine our CapEx plan for next year. We have postponed, as I said, a number of projects and works. You're right. This is focused on France. So when it's too early, we'll have to revisit. We think that the annual CapEx envelope should be relatively unchanged for next year, we'll see where we are exactly at the beginning of the year. . On your second question relating to the recent market share data we several things to have in mind. So the first 1 is that in the context of consumption, as Alexandre said just a minute ago, the anniversary campaign has not been as efficient in the hypermarket as it is traditionally. Then we have a very [indiscernible]. I'm sure you saw that. which I think was roughly plus 30 bps last year. So it's a lower number than we had in the previous period with a high historical marginally on market share over the summer. As you know, we have the remedies that I mentioned with a -- roughly 15, 20 bps per period. If you see between P6 and P9, we've had positive volume market share despite this negative perimeter effect which we think is a good sign and which is consistent with what we hear from customers in terms of price image, price perception. we've been implementing a number of waves of price decrease since the beginning of the year. And it's important to notice that for 4 periods in a row, we've been gaining market share in volume terms despite a net perimeter effect, then we have this promotional campaign in P10. But I think overall, the dynamic is interesting.

I had 1 follow-up, actually, if I may. Of the EUR 80 million to EUR 200 million that you mentioned, are you able to split that out between the one-off kind of cost related to shrink to store repair? And how much of that is the expected deterioration in the like-for-like going forward?

Well, so as Alexandre said, there's a number of moving parts. And you see that the situation is developing. There's 1 number within these envelopes that we have flagged is that the cost, the specific cost for the last few days relating to merchandise relating to repairs and so on was in excess of EUR 10 million just for the past 2, 3 days. And so that's the only number we have flagged, then I think it's premature to detail the main bricks inside the buckets that you described.

Your next question today comes from the line of from Manjari Dhar from RBC.

My first question was just a follow-up on the previous questions on the new guidance range. I was just wondering for if you could help us understand what -- what would be the situation? Or what would the situation look like to get to the EUR 80 million number versus the EUR 200 million number that you commented, I suppose what should be -- we'd be looking out for? And then my second question was just on Cora. I appreciate the good top line progression. I was just wondering, given the developments that you're seeing now, what are your expectations for Cora for the full year now?

Thank you for your question. It's an ongoing process and ongoing crisis, but it's always quite difficult to absolutely give you precise element. But the difference between EUR 80 million to EUR 200 million would be linked to banks of the crisis, the magnitude of the crisis the number of security or unsecurity events that will occur. For example, they are certainly a new demonstration, national demonstrations. Without any doubt, I hope security would be better than last Saturday, but the impact on our activities would be high. So -- and there are several that are already announced. So it's difficult to precisely tell you the difference between EUR 80 million to EUR 200 million, but the 2 main aspects are length and magnitude and consequently, impact on the sentiment of the customers. So the more the crisis is lasting. The longer it is, the more impact it has on the customer confidence on their on their willingness to consume particularly for events like Black Friday or Christmas seasons. So that's what is key for us. Concerning Cora, you have seen the dynamic at the first quarter, 5 at the second quarter, 7.5% at the third quarter. So we keep improving the commercial dynamics and we're expecting more for Q4. We need more for Q4 to reach our objective. But the current dynamic is positive.

The next question today comes from the line of Sreedhar Mahamkali from UBS.

Alexandre, Matthew. I do realize the severity of the situation, but they seem to be very large cuts to both margins and free cash flow. Maybe just to dig a bit more into some of these topics. Maybe first one, actually, in terms of Q3, margins and cash flow, were they in line with your expectations prior to protests, were you delivering sort of on track if you were thinking? That's first question, specifically on Q3 progress. Secondly, I think, again, trying to calibrate, I know it's a bit of a difficult one. But where you are sitting here now EUR 80 million to EUR 200 million range that you talked to. How do you scale that from the EUR 10 million that you just talked to in the past few days? What needs to happen, is there any more color you could give, that will be helpful. And finally, that shortfall when you look at the group level, I think you're still saying operating profit should grow. But clearly, there is a reasonably large cut on France. When we look back, is it just France or, are there other regions, Europe, LatAm are also a little behind the expectations? Is there anything else to be recalibrated as we sit here.

I would let -- I would let Matthieu precise different elements, just to be very clear because it's important our Q3 commercial momentum and performance was good and in line with our expectations. And on a sole basis, till Friday, we would have confirmed our guidance. That's where we were till Saturday morning. So that's something that is very clear. And second element I can tell you on that Matthieu will preside is that it's only this revision is only limited to France. The average geographies are in line with expectations and are in line with our objectives on guideline.

Well, no, it's very clear. Maybe just on your second one, Sreedhar,you see it's a mix of the EUR 80 million to EUR 200 million is a mix of specific moments where we have to close some stores earlier, specific costs, as you can imagine, there is a number of security agents, which are present in some of our stores. we're adopting a number of operational process to ensure the right opening. So just opening the stores is more expensive from Monday morning onwards. And then it's about business trends and more of the of the consumers with a number of key days, including Saturday Alexandre just mentioned, the upcoming demonstrates, and at the moment, where we have a high proportion of our profit, which is generated and a negative assumption trend at this moment is obviously very sensitive for our bottom line. We have high level of nonfood inventories that has already come into our stores into our distribution centers. We look forward to selling them and having the end-of-year campaign, obviously, this is more at risk today than it was a week ago

The next question today first from the line of Xavier Le Mene from Bank of America Securities.

Yes. actually if I may. The first one, back on France, I'm afraid. How do you compare your network versus the competition, what I mean there is do you think that your network is more at risk than your competitors or not? And do you see some format more at risk? Is it the hypermarket or the supermarket or the conveyance stores? Just to understand potentially what may happen going forward, especially on your market share. So if you watch it than the other, so something I would like to understand. A brief question could different fo the acquisition that you're making. Are you buying just the sales? Or are you also buying brands like [indiscernible]? That's the first part of the question? The second thing, do you see a risk of potentially losing some of the affiliates of Core, or do you think that you would be able to keep a good retention here? The third 1 is just on Brazil. What are your expectations actually positive residential election? So do you expect some improvement? I know there's still a lot of uncertainty, of course, but do you have hope that things could get a bit better post election?

Thank you for this 3 question. First 1 is, of course, very relevant. No doubt that we are among the main retailers in France, the most affected by this crisis due to the fact that we have the larger number of [indiscernible], 6,000, and that we are a leader in convenience in urban cities, if we are a leader in Paris, we are a leader in new. We are a leader in Marseille. All these cities, of course, are strongly hit. They are not the only 1 to be but they are strongly hit also due to the number of stores we have due to the fact that our convenience stores are strongly fluent in the center of the main big cities in France. Of course, we are more hit than our many competitors. As you have [indiscernible] federation and when I compare a number of stores that are affected in my competitors and colleagues, of course, the number is highly different. For some of them, it's sometimes almost 0, sometimes 2 or 3. So it's really related to the role we have on convenience stores and in the center of cities. Codifrance first, we are very happy of this acquisition. It was quite a surprise, I think, for the market that we could be able to enter this process it's perfectly in line with our objective to reinforce our leadership on [indiscernible], both on franchise and on affiliation business. I think we have been quite active and it should not have been in our -- it shouldn't have been full for us. But we have been quite good for, I think, to lead this acquisition. So as you know, we are already operate in affiliation business in France, through the proxy banner. It will accelerate the business and strengthen our presence. Codifrance provides a skilled platform, supplying approximately 3,100 points of sale, with an established [indiscernible] infrastructure and experienced team. It generates approximately more than EUR 300 million in revenue on the satisfactory level of profitability. The integration will build on the continuity of Codifrance organization and business model stored supply Codifrance, of course, will not be converted to Carrefour banners, but we'll keep their own. And our plan is with Codifrance to progressively improve their commercial performance, help them to have better content and deliver with them short-term cost synergies. On the Brazil, it's too early to tell you what we think about the election because we follow all quite every day and the spread is very tiny unchanged day by day. So we will see on Sunday, what happens. And the good news, whatever will be that this uncertainty process will be over and after we see what would be the next president [indiscernible].

Next question today comes from the line of Monique Pollard from Citigroup.