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Paris: Shares in Carrefour sank to their lowest in five years on Thursday after the French retailer's second-quarter sales at its hypermarkets showed clear signs of a consumer spending slowdown.
The retailer, the world's second-largest after Wal-Mart, posted on Wednesday a sharper than expected drop in French hypermarket revenues as shoppers opted for cheaper non-branded goods and spent less on non-food items.
"Consequently it is natural to ask whether the consumer environment has taken a significant turn for the worse in recent weeks," Bernstein Research said in note.
Consumer confidence in Europe and the United States has deteriorated markedly on the back of a sustained rise in inflation, oil and consumer goods prices.
In France, consumer confidence fell to minus 46 in June, its lowest level since records began in January 1987. Other European retailers are also suffering, including Britain's Marks & Spencer which on July 2 issued a profit warning and said the consumer downturn was likely to last longer than expected.
Carrefour, which issued a profit warning last month, is more sensitive to consumer spending cuts than many of its food retail rivals due to its high proportion of non-food sales.
On Thursday, the stock hit its lowest level since March 2003 and by 1023 GMT it was down 10 per cent at 30.99 euros. Rival Casino's shares were down more than 3.5 per cent.
Market reaction
Carrefour's shares have lost 27 per cent in a month and are down 40 per cent so far this year, while DJ Stoxx European retail index has lost 33 per cent and the CAC 40 index lost 24 per cent.
The share price fall could offer an opportunity to shareholder Blue Capital to raise its stake further from the 10.7 per cent it has built over the past year. The holding company is jointly owned by billionaire Bernard Arnault and property group Colony Capital.
Carrefour on Wednesday declined to comment on a report by French magazine Challenges which said Blue Capital could raise its stake to 15 per cent after Carrefour's trading update.
Strategy
Some analysts said Carrefour's disappointing revenue figure could also partly be blamed on the retailer's promotional strategy.
"In a very depressed environment for consumption, Carrefour lost 0.3 per cent of its market share, particularly in May," Exane BNP Paribas said in a note.
Carrefour said tackling its hypermarkets' market share in France was now a priority and it planned to cut prices to lure shoppers.
It maintained key financial targets for the current year and forecast a rise in first-half operating profit of at least five per cent but some analysts remained sceptical.
"The group tried to reassure but we believe that 2008 targets are over ambitious," Cheuvreux said in a note.
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