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Kesa Electricals falls behind in the UK

The trading updates of Europe’s third largest electrical-goods retailer, Kesa Electricals, <KESA.L>, were delivered recently covering a ten week period up to 8th January 2010. The retailer, trading as Darty in France and Comet in Britain, witnessed a sales drop of 0.3 percent, at stores open for more than a year, in the ten week phase. The analyst forecasts predicted a four percent decline and the group saw a Comet Christmas sales drop around 3.9 percent, with gross margin down fifty basis points. This was attributed to tougher comparatives with the same period last year, during which Comet was enhanced by the temporary reduction in VAT.

With the onset of a mild recovery in France, the sales have gone up to 3.6 percent, aiding the French operations to again see the light of the day. The economic recession across Europe has definitely dented the retailer’s fiscal stand, what with the consumers having decided to curb expenses on appliances like televisions, ridges and freezers.

With just under 50 percent of its revenue made in France, Kesa reported that the   like-for-like sales at Darty rose 3.6 percent, focused by the demand for lower margin multi-media ranges like MP3 players, laptops and notebooks. There was also a decrease in the gross margin.

Nevertheless, with the recent cessation of economic downturn, a modest recovery has been witnessed in the electrical industry, providing some amount of buoyancy to the retail sector.

It is a known fact that the global economic scenario has an effect on the mannerism and level of expenditure made by the consumers on electrical appliances. Expenses on white goods in particular is effected and unrestricted spending on higher value electrical products gets curbed naturally.However,the web generated sales of the group has significantly increased by 19.3 percent.

In spite of a cautious economic resurgence, with the consumers concerned about debts and unemployment, many retailers are still a worried lot. To add to this, the adverse weather conditions across Europe have also cast a not-so-positive influence on Comet. There was a fall of about 1.2 percent in the Euro zone retail sales in November from October.

The like-for-like sales at Kesa's other established businesses -- BCC, Vanden Bore and Datart -- fell 5.5 percent .Even though the sector has put up with some severe competition over the recent years from an increasing posse of online retailers, the group’s developing businesses Dart Italy, Darty Turkey and Menaje del Hogar (Spanish electrical chain) have significantly achieved a great deal thus increasing the total revenue by 8.4 percent.

Televisions, digital cameras, laptops and coffee machines have been the top sellers over the festive season. The electrical retail chain capitalised on the growing popularity of the Nespresso coffee capsule machines in the final months of last year. With major brands entering the market, there has been a real expansion of the coffee capsule market through innovation over the past two years. Supplemented by brand communication, there has obviously been an increase in volumes and sales.

With the forthcoming World Cup football at South Africa, the group is eagerly anticipating an upswing for the purchases of new televisions ahead of the tournament. There will be no major difference with the time zones, which obviously means a larger number of viewer ship. And this will definitely act as a catalyst for increased TV sales.

Secondly, the transition from analogue to digital signals is expected to further rake in profits, with the United Kingdom and France deciding to go through the change sometime this year. Rome has been covered already and it has also begun in Italy.

According to Kesa Electricals Chief Executive Thierry Falque-Pierrotin, this change should also prove to be an impetus to the sales of digital recorders. He was of the opinion that though Comet had done very strongly and had surpassed in the market the year before during the Christmas sales, it was difficult to expect it to happen again. On the whole, he stated that Comet is keeping its market share, when perceived from a two-year view.

With its trading in eight other countries, the group has stated that its gross profit margin was flat. With hopes riding on its market’s revival from recession, Kesa’s shares rose by 59 percent last year, prevailing over a 35 percent rise in DJ Stoxx European retail index<SXRP>, but were down 4 percent at 139.8 pence at 9.20 am, estimating the value business at 741 million pounds.

The analysts at Bank of America-Merill Lynch expressed hopes of this resulting in a halt to the earnings momentum after the interim.

The pre-tax profit forecast for Kesa's year to the end of April 2010 was kept largely flat at 76 million pounds but the forecast for the following year was brought down by 4 percent to 97 million pounds, thanks to the weaker euro and UK gross margin pressure.

Nonetheless, there are signs of improvement in trading.

A rise of 0.1 percent in fourth-quarter underlying sales was reported last week by Media Markt/Saturn <MEOG.DE>, Europe's biggest electrical retailer while number two DSG <DSGI.L> beat Christmas sales forecasts.

Like-for-like sales at Kesa stores decreased 5.5 percent, much better than the 8.5 percent decline foretold by analysts, in the other established markets of Belgium, the Netherlands and the Czech Republic.