Bloomberg News

Kesa Falls After Margins Worsened in Quarter: London Mover

February 01, 2012

Jan. 19 (Bloomberg) -- Kesa Electricals Plc, the electronics retailer that’s selling the Comet chain in the U.K., fell the most in more than three years after third-quarter profitability deteriorated as product prices declined.

Kesa dropped as much as 13 percent to 68 pence, the biggest intraday decrease since Dec. 16, 2008, and was down 8.5 percent at 9:51 a.m. in London. Gross profit as a proportion of sales fell 0.9 percentage points in the three months ended Jan. 8, London-based Kesa said today in a statement.

“When you see margin declines, it mainly means that the market is very competitive and the overall market prices are going down,” Chief Executive Officer Thierry Falque-Pierrotin said on a call with reporters today. “The margin pressure might continue for some time, which means we have to take measures to adjust our cost base to remain competitive and maintain profitability.”

Kesa, which agreed in November to dispose of the unprofitable Comet unit to focus on markets such as France, said today it will incur an extra cost of 10 million pounds ($15.4 million) to 15 million pounds as debt at the division exceeds the agreed threshold.

The profitability decline at Kesa contrasts with earnings at Dixons Retail Plc, the largest U.K. consumer-electronics retailer, which said companywide gross margins were unchanged as they roses 0.4 percentage points in its home market.

Kesa’s total sales rose 1.1 percent on a local-currency basis while sales at stores open more than a year fell by 1.3 percent. Sales at Darty France outlets open more than a year fell by 4.7 percent, accelerating from a 3.7 percent drop in the first half.

Online Growth

Web-based revenue rose 18 percent in the quarter, while comparable sales at Kesa’s so-called other established businesses, including the BCC, Vanden Borre and Datart brands, climbed 8.6 percent.

Kesa said Dec. 7 that its margin improved 10 basis points in the first half. The retailer expects to complete the sale of Comet on Feb. 3.

“The gross margin decline of 90 basis points was disappointing,” David Jeary, an analyst at Investec Securities in London, said in a report to clients. “We remain negative on the stock” as the company’s main French market remains “under pressure from a weakening economic backdrop.”

Investec said it’s reviewing price estimates for Kesa because of weaker-than-expected margins and sales at Darty.

--Editors: Tom Lavell, David Risser

To contact the reporter on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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