Staple Retail equity research

Explore the most viewed and latest equity research and media content for companies within the Staple Retail sector. Stocks in this sector provide goods and services in the food wholesale and drug retail industries.

Staple Retail equity research

Explore the most viewed and latest equity research and media content for companies within the Staple Retail sector. Stocks in this sector provide goods and services in the food wholesale and drug retail industries.

Latest Content

Carrefour

France: yellow vests movement and impact on retailers

Disruption in France A social media campaign in France, which originated against the proposed rise in duty on diesel, has rapidly morphed into “the worst riots in Europe’s third largest economy since 1968”. Thousands of protesters have taken to the streets for the four consecutive Saturdays, demanding an improvement living conditions and blaming President Macron for favouring the elite classes of society. Succumbing to the pressure, government had already suspended the proposed diesel duty hike, and has now announced few more appeasing actions, which include: 1) a 7% rise in the minimum wage, 2) removal of tax and social charges on overtime, 3) encouraging employers to give workers a tax-free bonus, and 4) an end to the surcharge on most pensions. However, it remains to be seen how Macron’s promises will be received by the protesters and whether more demonstrations will follow in the future. Impact on the French economy and retailers According to the French government, the total cost of promised actions is likely to be in the range of €8-10bn, besides the absence of tax benefits from the proposed tax hikes. Moreover, the protests would cost the French GDP growth 0.1% qoq in Q4 FY18. The Banque de France has also cut the country’s Q4 FY18 GDP growth estimate by half to 0.2% qoq. There is no doubt the ongoing unrest will adversely impact some sectors, e.g. the retail sector might lose over €1bn during the period (according to the French Retailers Association). The government also believes that large-scale retailers have experienced a 15-25% revenue loss, due to these protests. Note that Q4 (October – December) is the most important period of the year for retailers. In the run-up to Christmas, such high-octane protests will take a toll on the grocers’ top-line, especially in the store formats (e-com players might still benefit from store closures to some extent; we are assuming home delivery remains a possibility amidst a disruptive environment). If the current chaos spills beyond Q4 2018, the country’s economy is likely to be adversely impacted in the near term. We believe the combination of slower GDP growth, lesser tax receipts and higher social spending might shatter Macron’s budget deficit target of 2.8% in 2019. And this might force the government to halt its plan of progressively reducing corporate tax rate to 25% by 2022 (vs 33% at present). In a nutshell, the protests might inflict a double-whammy on French retailers (lower revenue growth in the coming quarters and a higher than expected tax rate in the forecast years). Two retailers from our coverage (Carrefour and Casino) are based / operate in France. Although both have witnessed a slump in their stock prices over the past few weeks, Carrefour seems to have lost slightly more value compared to its arch-rival Casino. However, this slide has also opened an opportunity to patient investors (investment horizon of more than a year) as the ongoing disruptions are non-structural in nature. We will be tweaking our estimates but reiterate our positive recommendation on both stocks.

  • 12 Dec 18
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Casino Guichard Perrachon

France: yellow vests movement and impact on retailers

Disruption in France A social media campaign in France, which originated against the proposed rise in duty on diesel, has rapidly morphed into “the worst riots in Europe’s third largest economy since 1968”. Thousands of protesters have taken to the streets for the four consecutive Saturdays, demanding an improvement living conditions and blaming President Macron for favouring the elite classes of society. Succumbing to the pressure, government had already suspended the proposed diesel duty hike, and has now announced few more appeasing actions, which include: 1) a 7% rise in the minimum wage, 2) removal of tax and social charges on overtime, 3) encouraging employers to give workers a tax-free bonus, and 4) an end to the surcharge on most pensions. However, it remains to be seen how Macron’s promises will be received by the protesters and whether more demonstrations will follow in the future. Impact on the French economy and retailers According to the French government, the total cost of promised actions is likely to be in the range of €8-10bn, besides the absence of tax benefits from the proposed tax hikes. Moreover, the protests would cost the French GDP growth 0.1% qoq in Q4 FY18. The Banque de France has also cut the country’s Q4 FY18 GDP growth estimate by half to 0.2% qoq. There is no doubt the ongoing unrest will adversely impact some sectors, e.g. the retail sector might lose over €1bn during the period (according to the French Retailers Association). The government also believes that large-scale retailers have experienced a 15-25% revenue loss, due to these protests. Note that Q4 (October – December) is the most important period of the year for retailers. In the run-up to Christmas, such high-octane protests will take a toll on the grocers’ top-line, especially in the store formats (e-com players might still benefit from store closures to some extent; we are assuming home delivery remains a possibility amidst a disruptive environment). If the current chaos spills beyond Q4 2018, the country’s economy is likely to be adversely impacted in the near term. We believe the combination of slower GDP growth, lesser tax receipts and higher social spending might shatter Macron’s budget deficit target of 2.8% in 2019. And this might force the government to halt its plan of progressively reducing corporate tax rate to 25% by 2022 (vs 33% at present). In a nutshell, the protests might inflict a double-whammy on French retailers (lower revenue growth in the coming quarters and a higher than expected tax rate in the forecast years). Two retailers from our coverage (Carrefour and Casino) are based / operate in France. Although both have witnessed a slump in their stock prices over the past few weeks, Carrefour seems to have lost slightly more value compared to its arch-rival Casino. However, this slide has also opened an opportunity to patient investors (investment horizon of more than a year) as the ongoing disruptions are non-structural in nature. We will be tweaking our estimates but reiterate our positive recommendation on both stocks.

  • 12 Dec 18
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