Electronics retailer Darty (DRTY), formerly Kesa Electronics, is having a hard time. With nearly 70 per cent of its sales generated in France - where eurozone-induced misery has left the IMF forecasting growth of just 0.4 per cent in 2013 - Darty is under pressure as hard-pressed consumers rein in their spending. In fact, with its half-year figures, management revealed that like-for-like sales in France had tumbled 2.8 per cent year on year and that profits had slumped 44 per cent to €24.4m (£19.7m). Overall, Darty revealed a €7.3m pre-tax half-year loss, with group like-for-like sales having fallen 1.7 per cent.
- Cost savings identified
- Refocus on core markets
- Sales falling
- Loss making in non-core markets
- Tough conditions in France
- Fierce online competition
But Darty's problems go beyond France. Some 9 per cent of sales are generated in 'non-core' markets of Italy, Spain and Turkey and, in aggregate, those operations saw like-for-like sales fall 4.7 per cent and make a €19.8m half-year loss. Darty is also struggling with sub-scale operations in Slovakia and the Czech Republic. Its more established operations in Belgium and the Netherlands, responsible for 22 per cent of sales, are hardly booming, either. Like-for-like sales there grew 3 per cent at the half-year stage, but those businesses still delivered a €1.4m loss. "The consumer electronics market is tough across all countries in Europe and no respite is assumed in the near future," says new chairman Alan Parker.
In response, management plans to focus on the group's core businesses in France, Belgium and the Netherlands. That involves exiting Italy, Spain, the Czech Republic and Slovakia - Darty has already announced the disposal of its Italian business to local retailer DPS. The aim is to sell or close the remaining chains over the next 12 months, while the Turkish operation will be kept under review. The move, says management, should eventually deliver €50m a year of costs savings, while the planned sale of non-core properties should realise €35m, more than offsetting the envisaged €30m cost of the restructuring.
DARTY (DRTY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 57p | MARKET VALUE: | £302m | |
| TOUCH: | 57-58p | 12-MONTH HIGH: | 86.9p | LOW: 36.8p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 13 | |
| NET ASSET VALUE: | Negative | NET DEBT: | €187.8m | |
| Year to 30 Apr | Turnover (€bn) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009† | 5.86 | -107.6 | 6.6 | 5.9 |
| 2010† | 5.79 | 77.8 | 11.0 | 6.6 |
| 2011 | 4.11 | 85.6 | 9.9 | 7.0 |
| 2012 | 4.03 | -17.0 | -7.2 | 3.5 |
| 2013* | 3.80 | 40.0 | 4.5 | 3.5 |
| % change | -6 | – | – | nil |
*UBS estimates (earnings are not comparable with prior years) Normal market size: 30,000 Matched bargain trading Beta:1.5 *UBS estimates (earnings are not comparable with historic figures) £1=€1.24 | ||||
But a backdrop of significant management change isn't ideal for driving large-scale plans. After all, chief executive Thierry Falque-Pierrotin will leave Darty on 4 January, with finance director Dominic Platt set to perform that role until a replacement is found. And even when the restructuring is completed, Darty will still be heavily exposed to the grim conditions in France. Past restructuring hasn't yielded ideal results, either. Darty paid private equity group OpCapita £50m in February to take Comet off its hands. While that allowed Darty to exit the dire UK retail electricals market, the final cost of the disposal increased the group's debt by €175m, helping turn a previously comfortable cash pile into a significant debt burden.
Darty, like all retailers, is also facing growing competition from the internet as price-conscious consumers surf the web for the best deals. And while Darty says that it is growing its web-generated sales faster than the market, overall progress looks modest, with just 11 per cent of product sales generated online. Argos, in contrast, generates 42 per cent of its sales online.
