Darty Plc (DRTY), the owner of France’s largest consumer-electronics chain, became the latest international retailer to exit Turkey after failing to halt losses there amid a stranglehold by domestic businesses.
The unprofitable Darty Turkey will be acquired for a nominal amount by Bimeks Bilgi Islem & Dis Ticaret AS (BMEKS), the Istanbul-based company that purchased Dixons Retail Plc’s (DXNS) ElectroWorld operations in the country this year. With 28 stores and a market share of just 1 percent, Darty’s business was “sub-scale” compared with local competitors, Chief Financial Officer Dominic Platt said today in an interview.
“In electrical retail, you need to have a good market share to be confident of long-term sustainable profitability,” Platt said by phone after Darty reported increased half-year earnings and the first French sales growth in three years. “We and other electrical retailers are following that same path.”
Turkey has proved a tough market to crack for international retailers. In addition to Darty and Dixons, Germany’s Praktiker AG and Spain’s Distribuidora Internacional de Alimentacion SA have exited the country this year. Carrefour SA also ceded control of its joint venture in Turkey, where the market is increasingly in the hands of local companies.
“It is a high-growth market, theoretically there is a lot of upside there, but understanding the local market and actually accessing that growth arguably requires a bit more local knowledge than western European retailers were equipped with,” said Bryan Roberts, an analyst at researcher Kantar Retail.
The sale completes Darty’s exit from unprofitable countries following the closing of its Spanish unit in June and the disposal of its Italian business. Eliminating money-losing operations was among requests made last year by 25 percent shareholder Knight Vinke Asset Management LLC, which in February installed Eric Knight as a representative on the board.
“We are working well with him and he shares our strategy and what we’re doing,” Chief Executive Officer Regis Schultz said of the company’s relationship with Knight Vinke’s founder.
Darty also said today that it has had interest from potential buyers of its businesses in the Czech Republic and Slovakia as it seeks to focus on France, Belgium and the Netherlands, where it’s either the market leader or the number two.
The retailer is in “no rush” to sell the businesses and may still keep them, Platt said, adding that their future will be resolved by the time the financial year ends in April.
Darty shares rose as much as 8.4 percent to 110 pence in London today and traded at 106.25 pence at 2:59 p.m. Analysts said the Turkish disposal and improved sales in France will lead to increased earnings estimates.
Revenue at French stores open at least a year rose 2.7 percent in the six months ended Oct. 31.
Consensus pretax profit estimates for the year ending April 2014 are likely to rise by 10 million euros ($13.8 million) to 12 million euros, analysts at Citigroup Inc. said in a note.
Adjusted pretax profit for the first half of the financial year advanced to 9.4 million euros from 6.6 million euros a year earlier, the company said today.
Darty also said it’s in exclusive talks to acquire Mistergooddeal.com, a French online retailer of items such as refrigerators and washing machines. Darty’s online revenue may reach 500 million euros next year with the proposed acquisition of the unprofitable business, which had sales of 128 million euros in 2012, Schultz said.
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