Weak consumption deriving from the crisis and the perception that recovery is still far away continues and will continue to take hostages. The principle distribution companies in Europe have seen their summer predicted net margins trimmed by 2% (a net margin is the profit earned on each euro spent). Only the British firms Tesco, Burberry Group, Kingfisher, Next and Signet Jewelers do not fall in this category.
Things are so bad that last week Carrefour was forced to send a quarterly profit advisory, dropping its own predictions once again after doing so in November of last year. The French multinational reduced its 2011 profits estimations by 15% after the decline in sales across Europe, mainly in France. While the emerging economies are almost the only customers for these companies, analysts have cut their 2012 sales predictions from 97.6 billion to 86.4 billion euros. This is a 17% decline over the course of two months.
If we look back to predictions made at the beginning of the fiscal year, the drop is even sharper at greater than 30%. Still, the profits are greater than 2010. For every 100 euros of Carrefour's sales, this French multinational run by Lars Olofsson will make 1.4 euros in profits.
Due to the precarious state of Carrefour's business, their stock has dropped more than 34% in 2011. Since the company's subsidiary Dia went public on July 5 of this year, shares have plunged nearly 27% while Dia has lost 16%. Further, Carrefour's market value dropped 6% last week.
Not an isolated case
Fear of a recession and worsening sovereign debt issues will force us to monitor spending continually. The last two weeks of market consensus predictions clearly convey this necessity; analysts expect net profit reductions of 3% for all European distribution companies over the course of the next year.
