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Carrefour plans price cuts to boost sales

CARREFOUR SA said it will step up price cuts and reduce capital spending this year to help revive sales growth and cope with "challenging" business conditions.

Discounts will be backed by an investment of 600 million euros (US$766 million), while expenditure on upgrading assets will be capped at 2.5 billion euros.

The Paris-based company also reported a 45-percent drop in annual profit yesterday, dragged down by impairment costs of 396 million euros, mainly in Italy.

Sales in France, where Carrefour gets 44 percent of its revenue, were little changed in the first two months of 2009, Chief Financial Officer Eric Reiss said. Growth slowed in Spain, the retailer's second-biggest market, and China, he said on a conference call.

Carrefour has cut sales and profit targets twice in the past fiscal year and installed Lars Olofsson as the new chief executive officer.

"While we were not expecting a full strategic overview from the new CEO, the press release stated cost savings and commitment to price," Credit Suisse analyst Xavier Le Mene said in a note. "This is a positive to us, but we believe that operating margin should be down further in 2009."

Investment in price cuts will be mainly funded by operating cost savings, Carrefour said, without being more specific. Capital spending will decrease from 2.9 billion euros in 2008, Reiss said on the call.

Net income last year fell to 1.27 billion euros from 2.3 billion euros in 2007, the company said. The average estimate of 15 analysts compiled by Bloomberg News was 1.82 billion euros. Profit was hurt by one-time charges of 524 million euros.

The charge "implies to us possible restructuring to come soon," Credit Suisse's Le Mene said in the note.


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