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Carrefour’s ‘headless duck’ takes flight

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Carrefour's "headless duck" is taking flight. That was how chief executive officer Georges Plassat described Carrefour after taking charge last year, so dire had things become at Europe's biggest grocery group. Well-received annual results reflect the turnaround since then. Major worries remain, stemming mainly from Europe's economic gloom and shifts in how people shop. But Mr. Plassat could achieve more.

Having replaced the hapless Lars Olofsson in May, 2012, Mr. Plassat quickly repaired a creaking balance sheet by shedding unwanted foreign outposts. Debt fell from €6.9-billion ($9.3-billion) to €4.3-billion. Extracting blowout prices from buyers in places like Colombia revealed hidden pockets of value, and gave the grocer more financial flexibility as well as a sharper focus.

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Sentiment then improved on what was a bombed-out stock. Analysts turned buyers; shareholders enjoyed a 59-per-cent return, even before March 7's results; and the company's price-earnings ratio rose nearly 60 per cent, to 14.4 times earnings.

It gets harder from here. The disposals are done, so the focus shifts to operational improvements. Carrefour must justify the premium stock-market rating that it now commands versus peers. The group relies heavily on beleaguered French, Iberian and Italian consumers, and on vast suburban hypermarkets, which shoppers are ditching in favour of online orders and local convenience stores.

Two meddlesome major investors, French billionaire Bernard Arnault and U.S. property magnate Tom Barrack, further complicate matters. With their 2007 investment still deep underwater, they are watching closely.

Happily for Mr. Plassat, things are moving in the right direction, with margins improving in the core French market. And he can do plenty more. He is already handing power back to store bosses and restoring capital expenditure to healthier levels. Credit Suisse has suggested the group could wring out €1.3-billion more operating profit in France alone, through measures such as attacking waste, scaling back product promotions, and shifting to more own-brand goods. That would represent a major boost at a group with €2.1-billion in total operating profit.

It is too early to hail a definitive turnaround. But if it walks like a duck, and quacks like a duck, then who knows?

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