Shares in struggling electrical goods and domestic appliances retailer Darty (DRTY) have fallen 8% to 45.75p as investors react to a profits warning. Amid heavy promotions in weakening European markets, the £263.5 million cap is now unlikely to achieve even the lower end of consensus €30 million forecast for the year.
In a downbeat third quarter update, the erstwhile Comet-owner warned adjusted taxable profits for the year to April are likely to fall short of 'the lower end of current market expectations', given softening sales trends and increasingly promotional markets.
Structurally-challenged Darty, which has almost 500 stores in nine European countries and a listing on both the London and Paris stock exchanges, reported a 0.5% like-for-like sales fall for the three months to end-January.
The hard-pressed retailer faces cut-throat competition from cheap web-based rivals. It has flagged gross margin declines reflecting testing market conditions, an unfavourable product mix and the need to invest in lowering prices.
Darty did produce positive like-for-like sales in France. The business unit enjoyed a strong run-up to Christmas and during the January sales, benefiting from healthy sales of tablets and double digit sales growth over the Internet. Good performances were also achieved from core operations in Belgium and Holland.
Earlier this month (1 Feb), the company appointed experienced European retailer Regis Schultz as chief executive officer (CEO) from 1 May. Schultz has his hands full, as he'll need to drive through the group's 'Nouvelle Confiance' self-help strategy designed to stabilise the French business, improve returns in Belgium and the Netherlands, eliminate losses in non-core businesses and slash some €20 million euros from the group's cost base.
Analysts believe today's disappointment may not be the last of the downgrades. The picture remains gloomy in the developing markets of Turkey and Spain, where Darty suffered significant like-for-like sales declines. Darty has already announced it will exit the Spanish, Czech and Slovakian markets by April 2014, with Turkey being kept under review. The disposal of the firm's Italian business is expected to complete on 1 March.
Following this morning's news, analysts at Panmure Gordon have slashed this year's profit forecast from €42 million to just €27 million, while the broker has downgraded its 2014 profit estimate from €54 million to €32 million. 'The dividend is now uncovered and the new CEO might decide to cut it', writes the investment bank, which is sticking with its 'Sell' stance and 40p price target.
Cantor Fitzgerald retail analyst Kate Calvert writes: 'We view the restructuring of the group as a major step in the right direction to creating longer term shareholder value as material losses will be eliminated, but to become more positive on the shares, we need to see a stabilisation in French profitability.' For now, the analyst is maintaining her 'Hold' recommendation, although Cantor has put its forecasts and price target under review.