Shares in hard-pressed Darty (DRTY) are up 10.5% at 47p today, with investors welcoming news the electrical goods and domestic appliances retailer is closing down its loss making operations in Spain. This marks the latest positive step in the turnaround of the £225 million cap, which irked the market with a profits warning in February amid testing European market conditions.
In line with the objectives of a strategic review unveiled in December, the former Comet-owner says it has 'begun a managed closure of its loss making operations' in troubled Spain, where it runs more than 40 stores and expects to incur costs of around €30 million in exiting the market. This figure is better than analysts feared. Although Darty's Spanish business is taking market share, it remains sub-scale and is forecast to lose 'around €16 million' on €120 million sales for the current year to 30 April.
With operations spanning France, Belgium, Holland, the Czech Republic, Slovakia and Turkey, Darty recently (1 Mar) completed the disposal of its Italian business. In order to refocus on its core markets of France, Belgium and Holland, the embattled retailer intends to exit the Czech and Slovakian markets by April 2014. It is also keeping its sub-scale and loss-making business in Turkey under review.
Shares in the struggling retailer were hit by a profit warning in February. Darty warned heavy promotions in weakening European markets would mean profits falling short of even the most pessimistic forecasts for the year to April. Over the third quarter to January, like-for-like sales fell 0.5% as the company continued to combat competition from cheap web-based rivals and fragile consumer confidence.
Earlier this year (1 Feb), Darty appointed experienced European retailer Regis Schultz as chief executive officer (CEO). Progress has been made yet Schultz, who gets started in May, still 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 and continue to cut costs.
Following today's positive news, N+1 Singer is sticking with its 'buy' rating on Darty and nudges up its published price target by 8% to 65p. The broker's new numbers for April 2014, which exclude Italy and Spain, point to adjusted taxable profits of €54.5 million (2013: €30.5 million), ahead of €62.5 million by 2015.