OUTLOOK FAVORS CONTINENTAL CHAINS

JAMES FALLON

LONDON -- Food retail margins will continue to rise sharply in Continental Europe, but U.K. operators have less room for growth because of tighter planning rules and increasing price competition.

Such is the outlook for food retailers in Europe at a time when most sectors are going through rapid change, according to an assessment prepared by two financial analysts for SN Global.

Following are comments on several leading European food retailers by David Shriver and Tony MacNeary, securities analysts with County Natwest, London. Also included are listings of 1995 high, low and most recent closing stock prices in U.S. dollars.

CARREFOUR, France

The retailer remains a standout in the industry. It is investing substantially in new markets, with plans to open 18 to 20 stores a year worldwide over the next two years. It also is centralizing key aspects of its operations, setting up an international sourcing network for the entire group, creating a national logistics network and implementing scanning-based electronic data interchange. While the centralization carries some risk, it also is the key to Carrefour's long-term development. Profits this year should rise about 18% to $466.93 million (2.4 billion French francs) on a 10% increase in sales to $27.5 billion (141.2 billion French francs).

High $442.41

Low $393.97

Last $417.70

CASINO, France

It is the highest-risk investment among the major quoted French food retailers, although the current share price indicates most of the risk has been discounted. Casino should have high single-digit growth in the long term. The company is building the Casino name into a brand; overhauling its ranges, pricing, merchandising and marketing, and improving its supply-chain management. Short-term concerns are whether it can generate momentum in its core Casino business and successfully integrate the Rallye operations. Profits this year should rise to about $126.4 million (650 million French francs) on lower sales of about $12.53 billion (64.4 billion French francs) because of continuing problems integrating the Rallye chain.

High $30.23

Low $24.94

Last $27.43

PROMODES, France

Promodes represents one of the most exciting growth prospects in European food retailing. Its Geneva-based central buying office, Promodes World Trade, remains a key asset in its long-term development. About 8% of the company's sales should be sourced through the office by early 1995. The theoretical benefit to Promodes in terms of trade could be as high as 0.5%, which will provide a key competitive advantage in a low-growth, low-inflation market. The company should have a 16% rise in profits this year to about $189.1 million (972 million French francs) on a 7.5% sales increase to about $20.09 billion (103.3 billion French francs).

High $198.25

Low $172.89

Last $186.38

CONTINENTE, Spain

Continente is well-placed to take advantage of the structural evolution of the Spanish market. It is boosting its private-label products, which represented about 31% of sales last year compared with 28% a year earlier. Gross margins rose 1.2% last year as a result of changes in the product mix resulting from better supply-chain management. The percentage of sales going through central distribution is now 38%, compared with a target of 30%. It should have 1995 profits of about $108.89 million (14.38 billion Spanish pesetas) on sales of about $3.9 billion (515.49 billion pesetas) this year, and should be able to maintain growth of 18% over the next five years.

High $23.44

Low $18.75

Last $20.55

SABECO, Spain (Stock figures are for parent company Docks de France)

Supermercados Sabeco S.A. will remain the fastest-growing part of its parent company Groupe Docks de France in local currency terms, with expectations that it will increase peseta net profits by 22% annually over the next five years. It consistently gets high real volume growth -- running at about 13% on a same-store basis in late 1994 -- from its 39 Sabeco supermarkets and 10 Super Sabeco superstores, and sales should rise about 21% per year through 1998. Plans are to add four new stores a year over the next four years.

High $143.58

Low $124.12

Last $140.07

PRYCA, Spain

Pryca is undergoing an upswing in earnings after a poor 1993, with strong improvement in gross margins resulting from better buying conditions, strong supplier support for promotions and administrative economies through centralizing payments to suppliers. Pryca is undertaking many of the same centralization decisions in Spain that Carrefour is doing in France in terms of payments and logistics, which will contribute to its growth in the longer term. Pryca should have compound earnings growth of about 16.6% over the next five years and compound sales growth of 13% in that time.

High $16.40

Low $14.53

Last $15.23

J. SAINSBURY, United Kingdom

J. Sainsbury is facing a challenge to its leadership position, with Tesco perhaps surpassing it in market share for the first time since the early 1980s. But Sainsbury is expected to generate net cash of $6.79 billion (4.3 billion pounds), significantly more than either Tesco or Argyll, and it is becoming increasingly aggressive in acquisition terms. It bought a 50% voting stake in Giant Food in the United States last year as well as the Texas D-I-Y home improvement chain in the United Kingdom earlier this year. The combination of Giant and Shaw's Supermarkets (another U.S. chain owned by Sainsbury) should provide major cost saving benefits for both chains. Giant will gain from Sainsbury's expertise in private-label and logistics. While there is no formal agreement for Sainsbury to buy the remaining shares in Giant, it is well placed to do so.

High $3.04

Low $2.16

Last $2.63

ARGYLL, United Kingdom

Argyll, owner of the United Kingdom's third-largest food retailer, Safeway, is floundering to find its market position as Sainsbury, Tesco and ASDA each establish strong images. While it has responded to the increasing price competition with its Safeway Savers line, the question is whether that is enough to give it a strong profile in the minds of consumers. Margins remain under pressure, but same-store sales recently rebounded, with a 1.4% rise in the first 17 weeks of the second half. There continue to be rumors Argyll is an acquisition target.

High $1.99

Low $1.41