Carrefour, Europe's biggest retailer, issued its fourth profit warning in as many months on Thursday, adding to signs cash-strapped shoppers are cutting back and increasing doubts about its turnaround plan.

The French group, battling to reverse years of underperformance in its main western European markets, said it expected 2011 operating profit to fall by up to 20 percent, compared with about 15 percent previously.

Its shares, already down around 40 percent this year, were off 5 percent by 1025 GMT.

The warning, coming after several strategy U-turns, is a fresh blow to the credibility of chief executive Lars Olofsson, who so far has retained the backing of the group's powerful top shareholder Blue Capital -- an alliance between French luxury tycoon Bernard Arnault and U.S. investor Colony Capital.

A Blue capital spokesman would not comment on recent speculation that Olofsson may be running out of time.

A source close to the matter said the alliance understood the turnaround, notably in France, could not succeed overnight.

In a call with analysts, new finance chief Pierre-Jean Sivignon blamed the warning mainly on worsening trading conditions in Europe, although he also flagged a drop in discretionary spending in China.

European retailers are struggling in their home markets as shoppers are hit by higher prices, subdued wage growth and government austerity measures.

On Wednesday, smaller French retailer Casino also reported slower growth in France but offset that with a strong performance in emerging markets.

Carrefour is suffering more than most because it makes the bulk of its sales in hypermarkets, which are losing out to specialist stores in mature western European markets.

It has also admitted mistakes, such as raising prices in France before rivals such as E Leclerc and Intermarche. In August it announced a new drive to cut prices.

Analysts said the latest warning raised question marks over the chances of a swift recovery next year.

Despite the significant issues facing the business in France, consensus is forecasting a 17 percent bounce-back in (2012) EBIT (earnings before interest and tax), Espirito Santo analysts said. We are more cautious on 5 percent.

FRENCH HYPERMARKET WOES

Carrefour, the world's second-biggest retailer by sales after U.S. group Wal-Mart, said third-quarter sales edged up 0.3 percent to 22.8 billion euros ($31 billion), in line with forecasts as robust growth in Latin America barely offset weak sales in France and western Europe.

Sales at French hypermarkets open at least a year dropped 4.6 percent excluding fuel, deteriorating from a 1.7 percent decline in the second quarter.

That included a 9.6 percent plunge in underlying sales of discretionary non-food goods, highlighting the extent to which shoppers are cutting back on non-essential purchases.

Carrefour, which makes about 40 percent of its sales in France, tied part of the decline to the initial impact of a new action plan it launched that entailed fewer promotions and more longer-term price cuts.

Sivignon told analysts it was taking time for shoppers to assimilate the change and that process could take 18 months.

Carrefour reduced its price gap with fierce rival Leclerc by one percentage point in France in the quarter, Sivignon added.

Elsewhere in Europe, austerity and economic uncertainty weighed on consumer sentiment in Spain and Italy, while Belgium confirmed its rebound.

Emerging markets remained sources of growth, with sales in Latin America rising 10.2 percent at constant exchange rates.

But China was disappointing with an 11.2 percent drop in non-food sales, which reflected the effect of inflation on discretionary spending, new regulation prohibiting markdowns and a strong comparable basis, Sivignon said.

JP Morgan Cazenove analysts said the group's performance in countries like China and Brazil was lagging rivals like Tesco and Casino respectively.

Recognizing the challenges for its hypermarkets, Carrefour set out an ambitious plan to reinvent the format last year with new Carrefour Planet stores that drop the commitment to sell everything under one roof in favor of a smaller number of specialist areas like fresh food and baby foods.

Carrefour said the roll-out was on track, but did not give an update on the first few stores, which Citi analysts said raised suspicions they were not trading as well as hoped.

If this is the case, we would see the fact that they are persisting with the rollout as concerning, they said.

($1=0.725 Euros)

(Editing by Mark Potter and Mike Nesbit)

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