Carrefour Sa

Good day and thank you for standing by. Welcome to the CAFAR Q1 2024 sales call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mathieu Malige, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon to all of you, and thank you for attending this Q1 2024 sales call. I'm here with Sébastien Valentin, Head of Investor Relations, and the rest of our IR team. Let me start with a few key highlights before we get into the details of Carrefour's Q1 performance. The quarter was marked by the following elements. First, an inflection in Brazil with a return to sales growth. Then, broadly stable revenue in France and Europe, primarily driven by the slowdown in food inflation across all markets, and continued strong momentum in Argentina. Overall, sales were up 13.5% on a like-for-like basis over the quarter. A key highlight of the period was investments in competitiveness, notably in France, which we intensified since the beginning of the year. These investments are already visible, translating into an improvement of our price positioning in the market. This contributed to an increase of six points in customer satisfaction at group level, as measured by the Net Promoter Score. In view of this, we decided to intensify and accelerate price reductions throughout 2024. At the same time, we are heightening our cost reduction dynamics with a new objective of $1.2 billion for our 2024 cost savings plan versus $1 billion initially. That increase is made possible by the strong momentum we have on current actions, which are rolled out at a rapid pace, and by incremental measures. This gives us confidence in our capacity to increase our investments while preserving our financial model. In addition, Carrefour continued to implement its 2026 strategic plan with new progresses on key initiatives. Carrefour branded products continue to grow at a rapid pace. They now represent 37% of food sales up two points versus last year. E-commerce GMV grew 33% in Q1, driven once again by a strong 52% increase in Brazil and double-digit growth in France. In light of these Q1 achievements, we confirm today our full-year financial objectives, including growth in EBITDA and recurring operating income, and a net free cash flow in line with the Carrefour 2026 plan trajectory as presented last February. Let's now dive into Q1 numbers, starting on slide 3 with group sales. Total sales for the quarter reached €22.2 billion, increasing by 12.1% at constant currency. Group like-for-like sales were up 13.5%. Expansion and M&A had a negative contribution of 0.4% over the quarter, many as a consequence of transfers to franchise and lease management and store closures in Brazil. Petrol contributed negatively for minus 2.3%, driven by lower volumes. The positive calendar effect of 1.4% reflects the leap year and the timing of Easter in March this year, versus April last year. Forex had a strong unfavorable impact on total sales growth of minus 11.8% over the quarter, essentially reflecting the depreciation of the Argentinian peso. In total, reported revenue was up 0.4% in Q1. Before reviewing our different markets in more details, let's have a quick look at food inflation in Europe on page 4. The sharp slowdown in inflation that started in Q2 last year continued, dropping to a low single-digit number in most European markets in March. Moving on to more details on France on slide 5. In this context of slowing inflation, light for light sales were slightly down. at minus 0.4%. Customer purchasing patterns were in line with the previous quarters, including more trading down and volumes in the market remaining negative. Food sales were slightly up in Q1, offset by more pressure on non-food. As mentioned during our full year presentation, we amplified the price investments that we initiated in Q4. At national level, More than 700 Basics products have seen substantial price reduction during the quarter. We will continue with new waves of price reduction every other week until the end of the year. Besides these national waves, other price initiatives are being implemented at store level with good success. In parallel, our cost savings plan is being implemented at a rapid pace and that said, we decided to take additional measures. With that, we are confident that we can sustain these investments in our competitiveness while maintaining growing profitability in France this year, both in absolute terms and as a percentage of sales. Moving on to Europe on slide six. Like-for-like sales were globally stable over the quarter, with some company patterns among geographies. First, inflation slowed materially in all our markets by more than three points on average compared to the previous quarter, which explains softer top-line trends. Second, we see strong competition in all our markets, and we're very active to make sure we maintain the right level of competitiveness. Here again, our investments are funded by the strong momentum on cost savings notably driven by good progress on European mutualization. We now have 20 international suppliers on our Eureka European purchasing platform. In this context, the best performing countries in the quarter were Spain and Romania, with like-for-like sales growth driven by solid increase in food sales of respectively 1.2% and 2.1%. In Belgium, commercial momentum remained very good during the period, with light-for-light sales up plus 4.3% in January and February. This was offset by a well-anticipated decline in March on very high comps, as March last year had benefited from disruptions at a competitor. The performance was tougher in Poland, with a decline of minus 4.2% light-for-light, in a context of increased price competition in the country since the beginning of the year. Let's move on to Latin America on slide 7. The quarter was marked by return to growth in Brazil in a context of positive food inflation with strong improvements in all formats. Like-for-like sales increased 1.3%. Atacadao, which accounts for 70% of our activity, delivered a solid 1.8% like-for-like sales growth, driven by both B2B and B2C sales. The ongoing rollout of service counters, such as bakery, butchery, and cold cuts, is meeting great success with customers. They are now rolled out in about 60 stores, and we plan to double that number by year-end. The retail division is also showing sequential improvement with a slight minus 1.4% drop in like-for-like sales over the quarter. Here again, our sales help initiatives are bearing fruit, including giving a more discount flavor to the stores, notably with the offering of some Atacada or Entry Ranch products on the shelves. SaaS Club keeps delivering strong performance with like-for-like sales of 6.9%, and a 33% increase in active members over the quarter. E-commerce GMV in Brazil keeps increasing at a high pace. It was up 52% in Q1 and particularly buoyant at Atacadao and Sam's Club. Lastly, the bank also showed positive dynamics with 22% growth of the credit portfolio over the quarter. After a tough 2023, marked by the rapid integration of GroupoBig in an adverse business and macro context, we now see most signals turning to green in the country. The converted stores keep ramping up rapidly, with another plus 21% like-for-like sales growth for the new Atacadao. They now contribute to earnings and margin growth. We continue to restructure the retail segment, Four Carrefour stores and one Bonpresso were converted to Atacadao last quarter, and nine more are currently undergoing conversion work. In addition, all the 123 unprofitable hypermarkets, supermarkets, and tododias we decided to close or sell have now been restructured. Our strategic initiatives are producing material results, both in terms of top line and cost. With this, we're confident that 2024 will be a strong year for Brazil and will provide clear evidence of the relevance of our investments in the country. A quick word about Argentina, where we keep delivering outstanding growth in a very high inflationary environment, notably with a strengthening of our price leadership. If you worked on our 700 million euro share buyback program on slide 8, As mentioned, this program is well underway. We have already repurchased 29 million shares to date for a total amount of 428 million euros. This includes 25 million shares bought from our shareholder, Galfa, as announced last month. We will receive these shares at the end of May after payment of the dividend. To date, the net number of outstanding shares amounts to 600 In summary, Q1 showed further progress on all key pillars of our strategic plan. Our investments in competitiveness are being well executed and we decided to strengthen our efforts on the matter, which will be financed by incremental cost savings, with a new objective of 1.2 billion for the full year. Sales in Europe have stabilized with a sharp slowdown in inflation, now at the low single-digit levels in all our markets. Recovery in Brazil is well underway, giving us confidence in the strong rebound in profitability expected this year. In view of all this, we're happy to confirm today our financial objectives for the year. That said, I want to thank you for your attention. Sébastien and I are happy to take your questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. One moment, please. And your first question comes from the line of Isabel de Brova from Morgan Stanley. Please go ahead.

Hello, good evening. Thank you for taking my questions. So my first question is on the incremental savings which you have announced. Could you give us more color on which areas exactly these savings are coming from? And both in terms of category, but also in terms of geographical split, should we assume that most of them are coming out of France? And really what I'm trying to understand is, is there any danger that you impact the customer experience by accelerating the savings. That is the first question. Then my second question is on the price investments. Can you help us understand what you target in terms of endpoint and end goal for these price investments? So what I'm trying to understand is whether you're trying to get on the front foot and get to a price point where you're gaining market share, or are these really defensive catch-up price investments because your markets are becoming more competitive? And then the final question is shorter, just in terms of the French market share. When do you expect these price investments to really gain traction and get the market share to at least a neutral position?

Thank you very much, Isabelle, for your questions. So first on the savings. Geographical split is really a relatively even contribution from all geographies relating to their level of activity. There's really two dynamics behind this increase in cost savings. First, as I said, the ongoing plan that we had launched now a few months ago for 2024 is delivering well, is delivering ahead of what we had anticipated. And so that's a positive. And then in the context of the competitive landscape, we have decided to accelerate on price investments. And so we've made a work in each of our countries to find additional areas where we could improve our costs in each of the countries. And so this leads to the additional 200 million euros. For sure, what we're trying to achieve in the message today is improving customer satisfaction, improving customer experience. And so we have a clear line, which is that these cost savings do not negatively impact the customer experience. I think we have a long track record of delivering cost savings, and we've always paid a lot of attention to this. Now the main domains behind these cost savings, obviously they include the head offices. where we've asked for a number of complementary efforts on spending and on resources. We're also renegotiating a number of contracts with our GNFS suppliers where we had significant inflation over the past few years in the macro context we all know in order to try to improve these conditions. We're also asking efforts for more merchandise for our COGS suppliers, including at Eureka level. And we've also revisited, with the arrival of Emmanuel Grenier, our IT costs throughout the group. So it's quite a widespread analysis, as you understand. So that's for your first question relating to cost. Let me move now to the price investments and what are our objectives. Well, our objectives are quite clear and we commented already in the full year presentation. And we've not changed our objective since 2018 and the arrival of Alexandre. We want to gain market share in all our markets. That's clear. That's what we have been able to deliver notably in France for two years, in 2001, 22, and beginning 23. The landscape has become competitive, as we already commented, and so we had to increase our investment into competitiveness. The objective is to gain market share, obviously, without starting a price war. And so that's why we have started to decrease the very high number of prices, 750. over the first quarter and since beginning of April we have one wave in one dedicated category every two weeks with at least 100 high rotation products which have a significant decrease. Why focusing on a small number of products with a high degree in terms of percentage in order to strike the minds of the consumers that there is something happening. We have strong relay in communication as well in the stores and online to relay on all these initiatives. These national initiatives are complemented by initiatives at store level, so there's also been a mapping of the relative competitiveness level of all of our stores. And so, complement to these national initiatives, we have more local price reduction campaigns at store level, which have also a very good impact. And so, that's under this scheme that we're going to continue to invest in the following month and until the end of the year. On your third question with the pace of the market share and when that should turn positive, you know, I think we're doing things in order. We invest in the competitiveness. We see that the customers have noticed it is already visible in the price indices. And so then it's hard to be very precise on that. on the elasticity and when it will occur. What is sure is that the volume market share, market share in volume terms, should have the inflection point ahead of the market share in value terms, given the magnitude of the price investments that we are putting into the market. That's where we are on these topics, Isabelle.

Thank you very much.

Thank you. We will now go to the next question. And your next question comes from the line of Viraj Brambat from Citi. Please go ahead.

Thank you. Good evening. I have two questions, if I may. So the first one, following up on Isabel's second question, In France, you noted an uptick in NPS following your investments and also noted Leclerc somewhat stepping off the gas at Folio. The recent market share data doesn't indicate a change in dynamics, but have you since noted an uptick since April, especially on the volumes front? And my second question is on the Eureka ramp-up. You mentioned previously moving on to your second wave of suppliers. How have the supply negotiations progressed here? If possible, can you quantify the cost saves achieved from your buying platform? Or broadly, how much this contributes to the raised cost save target? I appreciate that involves ongoing supplier negotiations, but any color here is helpful.

Thank you, Viraj. And let me welcome you. you recently took over, so let me welcome you to the Carrefour story. On the first one, and the price investments, you know there's always a lag between the market share dynamics and the price investments, so we're clearly at this moment where the market share dynamics reflect the investments, notably of Leclerc in 2022 and 2023. And all the investments that we're making at the moment are not yet visible in market share. We've done it in the past, as I said earlier. First, you have your NPS. which starts reacting. That's the case in Q1. It was already the case in Q4. So that's good news. And then we know that traffic and number of products per basket are going to follow lifting market share. So we just need to give it some more time. Maybe what we notice, which is not a surprise, is that the elasticity of these price investments comes a little faster than we experienced in the past, which is an obvious consequence of the sensitivity of our customers on price and competitiveness, particularly at this moment of the macro cycle. On your second question regarding Eureka, so good news that we wanted to share with you. We're having these negotiations with 20 suppliers, so this is exactly what we had planned. You remember that we had a ramp-up over four years to reach close to 50 suppliers, which will represent 50%. or for FMCG purchases. So we had four suppliers last year. We've extended that to another 16. Negotiations are underway. We're very satisfied with the dynamics. These additional 16 suppliers have understood the benefits and the value added of negotiating at European level and for all the careful European countries. And so negotiations are underway, so hard for me to comment precisely, but good dynamics. And obviously, as I said in my speech, Eureka and other European initiatives are levers which do contribute to our cost savings, and they do contribute to our increasing our cost-saving objective for this 2024.

Very clear. Thank you.

Thank you. We'll now go to the next question. And your next question comes from the line of Clément Genelot from Brian Gagnanco. Please go ahead. Hello, Clément. Is your line on mute?

Hello. Thank you. Two questions from my study family. So the first one is on the Yeah, do you hear me?

Yes, Clément, we can hear you. Do you hear me? Hello?

Hello, hello. We hear you, Clément. Go ahead. Ah, okay, good. Thank you. So two questions from my side this time. Okay, thank you. The first one on the French price real investments. Are they financed by your own margin? I mean, what part of them are financed by your own margin versus what part comes from, let's say, deflation in some categories post-negotiations round? And the second one is also regarding the cost saving and the price of the investments. Is it fair to assume that the cost saving target upgrade of 200 million dollars is at least the real magnitude of price investments to be made this year. And if not, that means that our full year EBITDA is too low for this year. Thank you.

Thank you, Clément. Okay, so on the price investments, you know, it's a relative game as you all very well know. So there is very limited deflation in the market as I commented. It's true that it's the case on some products depending on commodities. But overall, we have a slightly inflationary environment. And again, when we announce price decrease, some of them being double digits, because we want to, again, focus this price decrease on a limited number of products. well, this is significant price investments, and anyway, you know, the customers realize very well what's the level of competitiveness, and so it has to be a real and meaningful competitiveness gain for the customers. So that's how we look at it. Then the I don't think we can exactly map the additional cost savings and price investment, notably for one geographical reason. The additional 200 is a group number, and as I said, we're focusing our price investments into Europe and notably in France. I think we've not changed our guidance, both for the French segment and that group level, while announcing that we are reinforcing our investments. This is due to the additional cost savings, obviously, but also to a number of initiatives which are ramping up quite well and which contribute positively to our bottom line. which is a continuation of what we already shared with you at the full year results. That includes e-commerce. So you saw a good traction on e-commerce top line. And as we shared with you, with that kind of commercial dynamics, we're able to improve the profitability of e-commerce. So it does contribute to lifting up the profitability, including in France. We also have an acceleration of our retail media business, both for Carrefour and with third parties through the Unlimited. We also have a ramp-up of stores that we converted to the Lease Management way of operations. And you know that these stores, they take time to ramp up to improve their performance. And now we have quite a significant number of stores. I think it's 38% of all hypermarkets today which are operated by third parties. And so we have now a portfolio effect of stores ramping up and contributing to the profitability. That's also an element in our appreciation of what's the level of price investments that we can dedicate to the French market while preserving our financial trajectory in line with the objectives that we shared with you and that we reaffirmed today.

Thank you. We will now go to the next question. And your next question comes from the line of Nicholas Champ from Barclays. Please go ahead.

Hi, good evening. Thanks for taking my questions. I have two. The first one is, do you see any reaction from competitors following your price investment in the different countries and especially in France? And the second question, I think you said, Mathieu, that you were confident to grow EBIT this year on the back of improving top-line performance in Brazil. To what extent are you confident to also grow your EBIT in France this year, despite the cost savings, but given also the price investment? Thank you.

Thank you, Nicolas. So, sorry, on France, limited reaction from competitors so far. And it's now been a little more than six months that we're active. So we monitor that very, very closely. Then it's also true that we are responding to some investments which were made by some competitors ahead of us in the in the cycle so that that could be an explanation but and so the price investments do translate in our price indices and price quantitative price price indicators so that there is a reality of of improvement of our level of competitiveness in France as of today. And so as I said in my speech, and I'm happy to confirm that, we are confident given everything that is going on in France that we are going to be able to increase our profitability both in absolute terms and as a percentage of sales as we discussed back in February. On Brazil, yes, I did also mention that we were confident, notably after this strong rebound and clearly an inflection in the dynamics, commercial dynamics in Brazil, so we're confident that Brazil is going to rebound in terms of profit and profitability in 2024, as we had expected. Clearly, the very good dynamics on Atacadao, including on the B2B sales, we don't talk so much about these B2B sales. But as we said, when we have declining inflation or deflation, the B2B customers tend to reduce their level of inventories and so they don't buy so much from Atacadao. We now have a positive inflation level on food in Brazil for now a few months and so we've seen a rebound in our B2B sales at Atacadao. So this is a driver on the B2C sales A lot of focus, as I said, to improve our competitiveness and have more services, including the counters, which have a visible effect on customer traffic and level of basket. So clearly, having more services does respond to an expectation from our B2C customers at Atacadao. So that's very, very positive. um then the um the converted stores uh are also continuing on their good dynamics uh in terms of uh of top line i mentioned the number but also bottom line um so that's uh that's really good already following the the path that we had we had set and shared with you uh back in july in july last year in terms of profitability so well, this is going in the right direction, then maybe a comment on the banking, where you've seen now for quite a while very dynamic portfolio growth, which is good. It didn't translate so much in 2023 into the bottom line because the level of delinquencies and associated cost of risk had increased in the macro environment that prevailed. We see things normalizing in terms of macro. We see some form of restoration of purchasing power. And so that's good news for delinquencies entering into 2024. So that's behind our confidence on the Brazil outcome.

Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star one and one on your telephone keypad. We will now go to our next question. And your next question comes from the line of Frederick Wild from Jefferies. Please go ahead.

Hello, good evening, Mathieu, Sebastian and team. Two from me, please. You mentioned that you've seen sales stabilize in Europe. Do you now see the outlook for inflation as also having stabilized as we've moved through the balance of this year? And then secondly, have you seen any signs yet of easing down trading in France and Europe in March or so far in April?

Thank you. Thank you, Frederick. We think that... Prices, and we discussed that in February, but the trend continues. Prices in France have been very stable, and I think we shared the month-to-month inflation in the presentation. The prices on the shelves in the market are very stable now since the summer of last year. And we don't see any meaningful change in this. You see that it's still very stable. So we think that we're just lapping over the peak of inflation, which occurred in end of Q1, beginning Q2 last year. And so we think that the headlines, inflation number, are going to stabilize pretty much where they are today. which is a low single-digit level for the rest of the year, except new developments on the geopolitical front or commodities. But with what we have on the table today, that's what we see and that confirms what we thought and shared with you a few months ago. I'm sorry, is that the case in Europe as well as France? Yeah, it's exactly the same trend. Then you may have slight differences in that or that market, but we see this trend overall being the same everywhere, which we think is quite good because with less pressure from inflation on consumers' purchasing power, we see a restoration of purchasing power And we think that's good for the outlook for volumes. Now on trading down, so far we've not seen any easing of this trading down. Still very strong dynamics of switching from national brand to private level. We still see a lot of success of all promotions. And so nothing specific there. We think that the pressure, accumulated pressure on purchasing power is still quite high, which materializes in declining volumes and still strong trading dynamics at play in the market. Great.

Thank you very much.

Thank you. We will now take our final question for today. And your final question comes from the line of Francois Degas from Kepler-Chivre. Please go ahead.

Good evening Mathieu and team. I would like to come back to the volumes in France and Europe. Could you share with us any sign of evolution across the quarter or more generally in the context of consumption erosion on fragmentation? Do you see that the volumes could evolve structurally or in a cyclical way in the coming months? My question behind that is where do you put the threshold of success? Is flat volume would be a success or do you expect actual growth in the coming months? Thank you.

Thank you. We don't see any significant evolution through the quarter on volumes, Francois. Still relatively negative, slight negative with quite the same level from one month to the other. Then I don't really know what you have in mind in terms of cyclicality. What we see is that the inflation on salaries is now higher than the inflation we have the CPI. And so we see some form of restoration of purchasing power. It does translate into the confidence indices that are published by a number of statistical institutes in all our geographies. And so you see that these level of confidence of consumers are improving regularly now for a few months. So we draw the line and we tend to think that volumes should stabilize later in the year. I think we're quite clear with this. Not very clear on when exactly we will cross the line, but we know this is the trend. Now, what would be success? Success is market share. Success is market share in volume terms. That's what I said. We don't control the market, but we control our relative performance versus competition. And you hear in tonight's publication and announcement a strong determination to have the right level of experience and competitiveness in our stores to come back to a market share gaining dynamics.

Thank you very much.

Thank you. I will now hand the call back for closing remarks.

Thank you very much to all of you. uh for this uh for this meeting uh and uh we will be uh meeting again at our general meeting or at the end of july for our h1 uh release thank you thank you this concludes today's conference call thanks for participating you may now disconnect speakers please stand by