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Casino Group Doing Well In Struggling Sector

|Includes: Casino, Guichard-Perrachon Société Anonyme (CGUIF)
Summary

French Casino group has published its financial results this Thursday, boasting high-flying figures while competitors are otherwise suffering on the bear market.

Beyond the obvious good news to investors and shareholders, the yearly results validate the vigorous streamlining reforms undertaken by CEO Jean-Charles Naouri.

Those results confirm the group’s choices to establish bridgeheads in a selection of high-potential markets.

French retail leader Casino Group has just posted its financial results, which were presented to shareholders on March 14th, 2019. The trading profit is healthy, clocking in at €1,2bn. Operational margins have been preserved, indicating that the strategic choices made at the beginning of the recession phase have borne fruit. Casino Group has streamlined its operational apparatus and withdrawn from its less profitable assets through the sale of 20 major hypermarkets to competitors.

Strategic choices

The results indicate that Casino Group hasn’t suffered much from the market-scale crisis, and anticipated it, turning it to their advantage. Casino Group Head of Investor Relations, Régine Gaggioli, writes: “The Casino Group confirms all of its 2018 objectives. Continued good operational performance and the progressive roll-out of new profitability levers (new Horizon purchasing alliance, further data monetization, accelerated external development of GreenYellow) will enable Casino Group to improve its retail trading profit in France in 2019 at a similar pace to 2018, including the effects of additional rents.” In the past two years, new markets have been invested, both as growth potentials and as simple market shifts. The ongoing trend of small markets within city centers which complete the large “hyper” mall network have proven substantially profitable and enable covering all retail segments from small city center shops to large hypermarkets. In completion, Casino Group has anticipated the rising threat of e-commerce by acquiring the French e-commerce specialist, Cdiscount.

Digital opportunities

The mounting pressure of e-commerce, which has hurt competitors so badly in recent years, has strengthened Casino Group’s results, thanks to the Cdiscount powerhouse. Approaching the end of its development phase, Cdiscount has been steadily balancing its sheet and should enter the profitable phase of its existence at some point during 2019. Webmarketing analyst Caroline Saureaux writes that operating EBIT losses have been reduced: “to under 8 million euros, the giant e-commerce has still been able to turn the corner, with an EBITDAturning positive in the second quarter. Indeed, its GMV has increased by 9% in 2018, and Cdiscount ensures that it is on a more or less profitable growth model.” Experts are still figuring out the future of e-commerce and are not sure if e-commerce will replace traditional sales outlets, complete them, or will merely consolidate as a minor segment of sales. Whichever the future, Casino has successfully predicted the market shift towards online distribution, optimized delivery services and big data resources.

Data centric approach

In order to stay ahead of the digital curve, Casino Group is investing into data centers, big data processing and management, and has matched Amazon Go’s cashier-less store in Paris - which is an indication of Casino’s digital maturity. “The retail business is now innovation-centric, and this goes beyond mere technology,said Jean-Charles Naouri, chairman and CEO of the Casino Group, in a statement. “In the future, the gap between brick-and-mortar and digital stores will close. Physical and digital distribution channels will not only need to adapt to tastes and trends but also to anticipate them.” He intends to further the developments effort in the digitization of services.

A struggling sector

Comparatively, competitors have either encountered greater difficulties or have proven less capable to face them. Auchan group suffered both structural adjustment problems and a poor conjuncture, resulting in heavy losses in 2018. Reported by CNBC: “French supermarket group Auchan’s 2018 profits suffered a blow from the country’s anti-government “Yellow Vests” protests, costing the retailer 140 million euros ($157 million) in lost revenue. Auchan also faces fierce price pressure in its home market from the likes of Carrefour and Leclerc as well as competition from Amazon. A tough market hit its results in Italy too and in Asia where its Sun Art Retail subsidiary faces online competition.” Said pressure from competitors has not benefited them much, since Casino is virtually the only supermarket group to fare well in the past year.

The European distribution market has been shifting substantially in recent years, and headquarters have been scratching their heads to figure out their next moves. All have launched in in-depth reforms but, so far, only Casino Group seems to be on ahead of the curve. The latest financial results tend to confirm this, will instigate considerable confidence within the markets, and secure the French group’s future for the next few years.