Carrefour has said it will incur one-off charges related to its Brazilian operations this year of EUR550 million (USD716 million), up from a previous estimate of EUR180 million (USD234 million). In light of this, the retailer has revised its fiscal targets and expects operating profit this year of around EUR3 billion (USD3.9 billion), around EUR130 million (USD169 million) lower, on a pro forma basis. The operating profit was also cut by EUR50 million (USD65 million) after the sale of its operations in Thailand last month.

"What happened in Brazil was clearly a malfunction," Carrefour CEO Lars Olofsson said in a conference call yesterday. "We are determined to do what it takes to get to the bottom of what I call earlier mismanagement," he added.

Over the summer, Carrefour replaced its management in Brazil and hired KPMG in October to audit its Brazilian operations after poor performance at its hypermarkets and superstores. The charges, which followed the audit of Carrefour's business in Brazil are related to depreciation and inventory adjustments, provisions for labour and tax litigation, non-recoverable supplier rebates and depreciation of tangible assets, company executives said. Carrefour's Financial Director Pierre Bouchut said in the conference call an investigation that could determine "the existence of possible responsibilities," is ongoing.

In addition to the higher charges in Brazil, Carrefour attributed the downward revision to a worse than expected performance in France since September and tough economic conditions in Southern Europe, namely Italy, Spain and Greece.

The retailer has lost market share in France since September as competitors opened more stores, while price deflation "is evidently pressing margins," Olofsson said. On a like-for-like basis, Carrefour is gaining market share and considerable cost reductions mean "we should be able to grow our margins in 2010 compared to 2009 in France," he added. The retailer is not planning to change its pricing policy in the country. In Spain, where Carrefour's business is being hurt as food prices drop, the retailer expects to maintain profit levels through cost cutting measures this year.

Carrefour executives stressed the retailer did not plan on exiting Brazil, where it expects to turn around operations quickly, especially since the smaller stores and the Atacadão cash & carries are still performing well. Expansion plans in the country won't entail increasing the number of hypermarkets, but will rather focus on smaller stores and the Atacadão chain. Some hypermarkets could even be converted to the Atacadão banner the executives said.

The situation in Brazil - and current trading conditions in France and Southern Europe are not likely to affect the company's longer term targets. As such, the retailer expects to achieve operating profit of EUR5.2 billion (USD6.8 billion) in 2013 and EUR6.4 billion (USD8.3 billion) in 2015.