Kesa sees few signs of festive cheer on high street

Kesa’s UK chain Comet, which has been sold for just £2, posted losses of £22m for the six months to October 31.

Like-for-like revenues fell by more than 18 per cent after Comet bore the brunt of the consumer spending squeeze.

Comparisons with stronger trading during a World Cup year in 2010 also dented the group’s sales.

Kesa Electricals called time on its ownership of Comet last month and it plans to sell it to retail turnaround firm OpCapita in a deal that will see Kesa pump £50m into the business and take on the firm’s pension scheme.

Shareholders will vote on the deal on December 15 .

If they give the go-ahead the disposal is expected to be completed in early February.

Kesa’s chairman David Newlands said OpCapita had secured the finance to complete the deal.

Electrical specialists such as Kesa and Currys’ owner Dixons Retail are battling cut-price competition from supermarket chains and the internet at a time when consumers are reining in spending as they worry about rising prices, muted wage growth, job losses, Government austerity measures and, more recently, the eurozone crisis. Last month Dixons reported wider first half losses and leading US electricals retailer Best Buy scrapped plans for a chain of European megastores and said it would close the 11 stores it has opened in the UK.

Kesa has said that because of the positive impact of the soccer World Cup last year, it expects the balance of revenue and profit will be significantly more weighted towards its second half than was the case in 2010/11.

But Panmure Gordon analyst Philip Dorgan, who is forecasting a full-year underlying pre-tax profit of £52m, said: “Generally, we don’t like companies who tell us that profits will be unusually second half weighted, mainly because it nearly always turns out not to be the case,”

The disposal of Comet for a token price left its mark on Kesa’s accounts as it reported half-year bottom-line losses of £126.5m.

Mr Newlands said: “Market conditions are becoming more challenging across all our markets. I am pleased therefore that we have reached agreement for the disposal of Comet, subject to shareholder approval.”

Richard Curr, head of dealing at Prime Markets, said: “Although the problems with Comet retail hit Kesa hard this year, the loss-making chain was finally offloaded, leaving one-off impairments and exceptional charges on the balance sheet.

“But just as this sorry saga was finally put to bed, the sovereign debt crises in Italy and France have started to impact on revenues from European operations, combining to drive the company to the losses forecast.”

Kesa, which is Europe’s third biggest electricals retailer, said second quarter group like-for-like sales fell six per cent.

Like-for-like sales fell by 3.6 per cent at its market leading Darty France business and slumped 15.1 per cent at its loss-making Comet business.

Kesa’s chief executive Thierry Falque-Pierrotin said: “What we’ve been seeing since the start of the third quarter is actually the same trends that we saw at the end of the second quarter.

“It’s a declining market, but on the same negative numbers we had at the end of the second quarter.”

Mr Falque-Pierrotin said consumers will continue to benefit from pre-Christmas discounts. He added that Kesa is well prepared for the peak season despite the tough environment.

Matthew McEachran, analyst at Singer Capital Markets, said: “Overall these figures are marginally better than forecast, but there was a small miss at Darty against our expectations which is where market nervousness is highest.

“In addition, there will be a higher tax rate short term. Management continues to focus on developing an integrated European network, differentiated by rolling out the Darty concept outside France.”

Simon Irwin, analyst at Liberum Capital, issued a “hold” rating on the stock.

“First half results are bang in line with expectations,” he said.

“There is no obvious new news in the statement or any update on the Comet sale, where there are some rumours that OpCapita may not be able to raise the funds.

“We downgraded our recommendation to neutral and see little reason to change that.”

Kesa’s shares closed down nine per cent, a fall of 7.5p to 74.2p.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, says the shares have acted as something of a European economic proxy and, given the current situation, there seems little to attract investors.

In the hands of private equity

KESA Electricals is paying private equity £50m to take struggling TV-to-microwave retailer Comet off its hands.

Retail turnaround firm OpCapita will pay a nominal £2 to acquire loss-making Comet, which has 248 stores and about 10,000 staff in the UK.

Kesa will inject £50m into Comet and retain responsibility for the chain’s defined benefit pension scheme.

The sale will allow Kesa to focus on its other European businesses, including the Darty electricals business in France.

“The board believes that a disposal on the terms agreed with the purchasers is in the best interests of ordinary shareholders and delivers a more certain outcome than continuing with the turnaround plan,” said Kesa chairman David Newlands.

Comet, founded in Hull in 1933, is the latest casualty of the consumer spending slump.