Darty Slumps After Retailer Warns Profit May Miss Estimates

Darty Plc, the owner of France’s biggest consumer-electronics chain, fell the most in more than four years in London trading after saying it will probably miss annual profit estimates after it offered more discounts.

Sales “softened” toward the end of the three months through January, while high levels of promotional activity are harming profitability, the London-based company said today. Should conditions persist, adjusted pretax profit for the year ending April 30 is “unlikely” to reach the lower end of analyst estimates of about 30 million euros ($40 million). The shares declined as much as 16 percent.

Darty has been seeking to turn around worsening sales with a focus on its Internet offering and services such as repairs. Still, acting Chief Executive Officer Dominic Platt said sales worsened after Christmas as consumers tightened their belts and the company provided more discounts to compete with rivals who offered items free of value-added tax, particularly in the Netherlands, Spain and France.

“Overall this is a weak update from Darty given softening market trends at the end of the period,” Georgina Johanan, an analyst at JPMorgan Cazenove who has an underweight recommendation on the stock, said in a report. “Given the magnitude of the potential downgrade, maintenance of a flat full-year dividend is looking increasingly less likely.”

The retailer said in December that subject to performance it intended to maintain its dividend for the full year. The total dividend for the previous year was 3.5 cents a share.

Continuing Pressure

Darty shares fell as much as 8 pence to 41.75 pence, the biggest intraday drop since October 2008. The stock was down 6.5 percent at 46.50 pence as of 10:05 a.m., taking the decline to 18 percent this year and giving the company a market value of 246 million pounds.

The retailer has vowed to eliminate losses in its unprofitable businesses in Spain, the Czech Republic and Slovakia and has sold its Italian unit to ease the profit decline.

Gross margins, a measure of profitability, narrowed by 1.1 percentage point in the third quarter, Darty said today.

“We can’t expect any material improvement in the coming year and I think there will continue to be pressures,” Platt told reporters on a conference call. “I think the consumer is tightening its belt in difficult circumstances and responding perhaps more to promotional activity and I think that will continue in the short term.”

The retailer’s markets “are challenging and highly promotional, and this, together with the product mix, is having an adverse impact on gross margins and profitability,” Platt said in the statement.

French Economy

The executive said that while November was “tough,” the run-up and through Christmas was good with strong sales of multimedia items such as tablet devices, which “gave us some hope that things were going to be in line with expectations.”

“What we’ve seen at the end of that peak season, people are returning perhaps to type, the economy in France isn’t getting any better, and people are responding more to promotions,” he said.

Sales at stores open at least a year fell 0.5 percent, following a 3.4 percent decline in the second quarter. Sales in France gained 0.4 percent on the same basis, compared with the prior quarter’s 3.2 percent decline.

The company announced this month that Regis Schultz, the former manager of French furniture and electronics retailer BUT SA, is taking over as CEO in May.

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