News Column

UPDATE: Darty's Annual Profit Boosted By Market Share Gains

June 19, 2014

Rowena Harris-Doughty



LONDON (Alliance News) - Electrical products retailer Darty PLC Thursday posted a significantly higher profit for its last financial year, as it shed loss-making businesses and revenues were boosted by gains in market share.


Darty posted a pretax profit of EUR25.3 million for the year ended April 30, up from only EUR4.0 million a year earlier, which it said was driven by market share gains, lower exceptional costs and revenues increasing to EUR3.58 billion, from EUR3.56 billion the prior year. Revenues were up 1.7% on a like-for-like basis.


Darty, formerly known as Kesa Electricals PLC, was a European entity which demerged from home improvement retailer Kingfisher PLC in 2003. Kesa Electricals also operated struggling UK electrical retailer Comet Group, but it sold it in 2012, and Comet went into administration just months later. Kesa then renamed as Darty, with its main operations in France, the Netherlands, and Belgium.


Since then, Darty has been restructuring the rest of its businesses in an attempt to turn them around and improve profitability. Over the last few years the company has shed some loss-making operations to streamline the business and save costs. It has also been investing heavily in bringing down its prices in response to competition from online retailers.


"We have seen overall market share gains, delivered positive like-for-like sales growth and improved our profit performance for the first time in three years," Chief Executive RÉgis Schultz said Thursday.


The company said the small domestic kitchen appliances market continues to grow well, while strong growth over the last few years in smartphones and tablets has offset declines in laptop sales and digital cameras.


It also said that the television market is beginning to stabilise after declining for the last few years, particularly in France. The segment had been boosted so far in the current financial year as consumers splashed out on new TV's ahead of the World Cup.


The company said it expects overall market conditions to remain challenging in the year ahead, but said it is well placed to deliver growth.


"Our aim over the medium term is to build our market share in France and increase retail profitability," said Schultz.


The company maintained its total dividend for the year just ended at 3.5 cents per share.


"Our plan is to increase the dividend once we are confident that out turnaround plan is delivering sustainable profit growth and earnings growth. We also still have net debt of a EUR185 million," said Finance Director Dominic Platt told Alliance News Thursday.


In a statement last month, Darty said its overall group gross profit margin was flat in the final quarter of its financial year, hit by promotional discounting, while revenue and like-for-like sales in its main French business were flat and gross margin fell. It said overall sales were hit by significant declines in its Czech Republic and Slovakia businesses, as well as weakness in Belgium and the Netherlands.


Darty said Thursday that its business has improved, having eliminated losses in its non-core markets with the managed closure of Spain and the sale of its Italian and Turkish businesses. However, Darty said its Dutch business has been particularly hit hard over the last few years by increase promotional activity which has put pressure on its margins.


Going forward, Darty said that pressure to discount heavily has abated slightly in the last six months, which is beginning to ease the pressure off its margins.


"Over the last few years there has been some quite heavy pressure on our margins, partly from competition effects and partly because of investment and category mix... As we look forward we expect to see the pressure receding, especially as the investment in price will reduce, as we are now much more aligned competitively," said Platt.


The group classes its core markets as its businesses in France, Belgium and the Netherlands. It also still has what it calls "non-core businesses" in the Czech Republic and Slovakia, having already sold off its struggling Turkish, Italian and Spanish businesses.


Its Czech Republic and Slovakia businesses continue to experience declines in revenues, although Darty has managed to stem losses. The company said it wants to sell the Czech Republic business, but it is waiting for the right opportunity.


"If the right opportunity comes along, we will sell it. The businesses are very different to the businesses we sold in Italy, Turkey and Spain, which were huge loss making businesses. The decision for us this time is more about the lack of scale opportunity for the future," said Platt.


During the year, the group's French subsidiary, Etablissements Darty et Fils, known as Darty France, acquired French deals website Mistergooddeal.com from M6 Group for EUR2 million cash. The company said its existing service infrastructure will be used to offer Mistergooddeal.com customers additional services on a pay-as-you-go basis. It said that, together with its superior buying terms and supply chain, is expected to create a profitable channel by year two of ownership.


"I am encouraged by the early results of our initiatives for future growth - the launch of our franchise business, building on the acquisition of Mistergooddeal.com and expanding our successful kitchen offer," said Schultz.


Darty is looking to expand into more rural areas of France and has launched a new franchise business model to try and accomplish this. It opened its first franchise store during the last year and expects to have around 30 stores open by the end of the current financial year. It plans to open between 100 and 150 stores over the next four years, with an average store revenue of at least EUR3 million.


Darty said it also plans to expand its recent move into selling whole kitchens. It said it is planning a to introduce the kitchens into a further 11 stores by the end of the current financial year, with a medium term target for its kitchen offer to be in around 120 stores. Its kitchen offer is currently only in 55 stores.


In an attempt to improve its customer service, Darty is trialling a new concierge type service, which is a WiFi connected device which can be attached to products like a fridge. If pressed, Darty says that within one minute a representative from the company will phone the customer and help with any product problems or offer advice.


"It is a way to be modern and provide more options for our customers," Schultz told Alliance News.


The company said it is trialling the service before launching it in France in October this year. However, the service will cost consumers EUR2 per month if they choose to take up the service.


During the year, Darty completed its EUR50 million costs reduction programme one year ahead of schedule.


Darty shares were trading down 1.3% Thursday at 86.75 pence. The shares were up 0.3% at 88.25 pence Thursday afternoon.







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Source: Alliance News


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