A Carrefour SA Planet store near Lyon, France. The retailer announced plans in 2010 to change 245 of 500 superstores in western Europe to the Carrefour Planet model. Eleven outlets will be converted in 2012. [Guillaume Plisson / Bloomberg]

Carrefour SA, the world's second-largest retailer, more than halved its dividend and said it would "significantly scale down" superstore conversions as it reported a decline in annual profit.

The payout for 2011 will be 52 euro cents (69 cents) a share, down from 1.08 euros in 2010, the Boulogne-Billancourt, France-based retailer said on Thursday in a statement. The average estimate of 31 analysts compiled by Bloomberg was for a dividend of 80 cents. Current operating income fell 19 percent to 2.18 billion euros, the grocer said, meeting its own forecast.

Revamped superstores, while performing better than non-converted outlets, haven't met expectations, Carrefour said, citing "unprecedented macroeconomic conditions in southern Europe" and "operational hurdles in France".

Eleven outlets will be converted in 2012, bringing the total to 92, according to the retailer, which in 2010 announced plans to change 245 of 500 superstores in western Europe to the Carrefour Planet model.

Further conversions are on hold and modification costs will be reduced before the program resumes, Chief Financial Officer Pierre-Jean Sivignon said on Thursday in a call to reporters.

The dividend cut "reflects concerns on 2012, in particular regarding the cash flow generation", Arnaud Joly, an analyst at CA Cheuvreux, said in a note to clients. The scaling back of store conversions is "not surprising", said the analyst, who has an "underperform" recommendation on the stock.

Fewer promotions

Carrefour fell as much as 1.1 percent in Paris trading and was down by 0.8 percent at 17.48 euros at 9:06 am. Before Thursday, the shares had risen less than 0.1 percent this year, giving the grocer a market value of 12 billion euros.

In response to the challenging economic environment in Europe, the grocer said it will lower prices, offer fewer promotions and boost the number of Carrefour-branded products on shelves. In France, it will also add more so-called drive pick-up points and develop e-commerce, it said.

Carrefour this year named Georges Plassat as its fourth chief executive officer in eight years after predicting lower profit five times in the past 18 months.

The retailer has been slow to adapt to shifting consumer behavior in Europe, where shoppers are favoring local and online stores to out-of-town superstores, which account for about 40 percent of sales.

The company will target cost savings of 400 million euros in 2012 as well as a planned two-day reduction in inventories, according to the statement.

Reduced spending

Carrefour said it will cut capital expenditure this year to between 1.6 billion euros and 1.7 billion euros from 2.3 billion euros in 2011. Spending levels will remain unchanged in emerging markets, where the grocer maintains its "strong commitment" to expanding in China, Brazil and Indonesia, Carrefour said.

The retailer also proposed a new dividend payout policy of about 45 percent of net earnings, adjusted for one-time items.

Carrefour said in January that full-year earnings declined by closer to 20 percent than 15 percent. The retailer uses current operating profit, which takes into account last year's spinoff of the discount chain Distribuidora Internacional de Alimentacion SA, as well as other items.

Plassat will join Carrefour on April 2 as chief operating officer and become chairman and CEO after a June 18 shareholders meeting, replacing Lars Olofsson.

Bloomberg News in Paris