Tue 08/02/2022 14:22 PM
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Q2’22 Earnings Call Transcript

French retailer Casino’s bonds traded down by a few points today, driven by what sources said was a combination of a wider crossover, weak results and fears of a ratings downgrade.

The €800 million 5.875% 2024 SSN were quoted in the low 90s according to Solve Advisors, down from the previous day’s mid-90s.

The €900 million 4.048% 2026 notes were quoted in the low 60s by Solve Advisors, down from the previous day’s 65.84.

The €900 million 4.498% 2024 notes were quoted at mid 70s by Solve Advisors, down from the mid 79.15 the previous day.

According to sources, the first-half results reported last week were below market expectations, while the crossover was 22 points wider today.

As reported, first-half EBITDA for the French retail banners (excluding GreenYellow, property development) was down 11.3% to €478 million, while free cash burn amounted to €323 million on an unlevered basis and €507 million after financial expenses, levels broadly in line with last year. This was only partially offset by about €200 million of proceeds from asset sales.

According to Reorg estimates, net leverage at the France retail+ecommerce scope rose to 6.9x from 6x over the past six months.

 

The group forecasts EBITDA in the second half of the year to be higher on a year-over-year basis, driven by improved sales in the recent weeks, one of the rare positive takeaways from the release.

As shown in the table below, sales growth accelerated at the Monoprix and Franprix banners in the four weeks to July 24.

In the second quarter, sales in the group’s France retail segment stabilized after five consecutive quarters of decline driven by a recovery in the Paris region and the gradual return of tourists, with same-store sales on an organic basis up 3.4% year over year in the second quarter and up 1% over the semester.

In e-commerce, revenue in the second quarter dropped 20.4% year over year to €369 million due to a high basis of comparison, while first-half EBITDA dropped 68% year over year.

According to a report by Bloomberg, retailers in mature markets are struggling to pass on higher prices to consumers as discount retailers, the likes of Aldi and Lidl gained market share potentially squeezing margins at more established competitors. Casino’s management said that “it is working hard” to keep its cost below food inflation.

In March, S&P Global changed Casino Group’s outlook to negative from stable on weaker performance and a difficult deleveraging path. In an update following the half-year results, the rating agency warned of a rating downgrade if profitability at the French retail operations does not improve in the second half and leverage remains above its own measure of 7.5x.

–Cedrick Cassin, Farooq Baloch
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