Dixons Near to Exiting Unprofitable Units as U.K. Sales Gain

Dixons Retail Plc said it’s close to exiting its online unit Pixmania and has agreed to sell its Turkish operations in transactions that will rid the retailer of unprofitable businesses and enable it to focus on U.K. growth.

The shares rose as much as 10 percent after Dixons said it got an irrevocable offer for Pixmania from Germany’s Mutares AG which involves the U.K. company paying 69 million euros ($91 million) in cash to support the business. Bimeks Bilgi Islem & Dis Ticaret AS will buy the ElectroWorld operations in Turkey for 2 million pounds ($3.1 million), it also said today.

Dixons has been seeking to withdraw from both businesses to eliminate losses and concentrate on the U.K., where it owns the Currys and PC World chains. Sales at stores in the U.K. and Ireland open at least a year rose 6 percent in the quarter ended July 31, it said today. Revenue also climbed in northern Europe, offsetting declines in the southern part of the region.

“The initiatives announced today rapidly simplify the group’s structure, lower its risk profile and allow for a further rerating,” Citigroup Inc. analyst Richard Edwards said in a note. “The trading update continues to highlight the U.K. operation is benefiting from strong market share progress.”

The share price gain was the steepest since May 16, taking the stock to its highest since September 2008. Dixons was up 7.9 percent at 47.75 pence as of 10:31 a.m.

Works Councils

Consultation with Pixmania’s work councils -- required under French law -- started yesterday and may take as long as four months, Dixons Chief Executive Officer Sebastian James said today on a conference call.

“We’re confident that the works council see this the way we do -- as a very good step forward for the company,” James said. “Pixmania operates in countries where we are not market leader, operates a model that is not ours and I don’t think we are particularly good at running that kind of business.”

Pixmania has lost money for the last two financial years, weighing on Dixons’ progress. Losses more than doubled last year to 31.3 million pounds and like-for-like sales fell 28 percent in the first quarter of the current financial year.

Dixons paid 266 million pounds for a controlling stake in 2006. Pixmania sells in 14 countries and also operates a software business that develops Internet platforms used by Carrefour SA and French clothing retailer Celio.

Closing the business would have cost more than 90 million euros, Dixons Finance Director Humphrey Singer said.

‘Welcome Development’

“On top of that we would have had losses for a considerable period of time, at least a year or two, whilst you negotiate the process,” Singer said.

Pixmania is slated to lose 20 million pounds in the financial year 2014 and 12 million pounds the following year, according to Citigroup analyst Assad Malic.

In Turkey, Dixons operates 32 Electroworld stores, including 18 franchises. The business made a pretax loss of 13.8 million pounds on sales of 170.7 million pounds last year.

“Today’s updates are a positive and welcome development for the Dixons recovery story,” Alistair Davies, an analyst at Oriel Securities in London, said in a note to investors. “Although completion of either deal is far from guaranteed, the impact on earnings would be significantly material.”

Exiting Pixmania and Turkey will add 20 to 25 percent to the retailer’s operating profit, he estimated.

The increase in U.K. same-store sales beat the 5 percent median estimate of 10 estimates in a Bloomberg News survey.

“We have had an encouraging start to the year,” James said. “Margins have held up reasonably well across the group.”

Future sales growth will come from tablet computers as household penetration is “still only over a third, so there’s still a lot of road to run on that,” James said. Other growth areas include premium, small domestic kitchen appliances.

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