Kesa to keep loss-making comet

Kesa , Europe's third-biggest electrical goods retailer, is retaining its loss-making British chain Comet for the time being after a search for a buyer failed to secure an acceptable price, according to Reuters. The company said on Thursday it was focusing on a turnaround plan for Comet, whose sales slumped nearly a quarter in the three months through July on a like-for-like basis. "We announced at our full-year results in June that in parallel to a turnaround plan at Comet we'd assess other strategic alternatives (and) that process is ongoing," Chief Executive Thierry Falque-Pierrotin told reporters. "We know what we want to do in the UK, we know what we want to do with Comet. The team are focused on delivering the plan which is really about improving the margin, improving the store efficiency and ... developing a web-driven, cross-channel policy," he said. Falque-Pierrotin declined to comment on any bids Kesa has received for Comet, which has 250 stores and employs 10,000, but said he expected to make a final decision on the chain's future before Christmas. However plans to revamp the chain could prove hard going given the tough trading environment for electrical goods. Shares in Kesa hit a 32-month low of about 85 pence in early trading, but were up 4.2 percent at 91 pence at 1048 GMT, valuing the business at about 517 million pounds ($814 million). Some investors figured the market had been too pessimistic in factoring in years of losses or exit costs for Comet. Specialists such as Currys owner Dixons Retail and Best Buy as well as Comet face cut-price competition from supermarket chains and the Internet, at a time when consumers are cutting back on discretionary purchases due to a squeeze on household budgets. Last week Dixons posted a 10 percent fall in first-quarter like-for-like sales. "Unfortunately, we have a double whammy of higher trading losses at Comet and developing countries, leading to a complete lack of transparency regarding the scale of the downside to the group," said analyst Philip Dorgan at brokerage Panmure Gordon. Analysts at Nomura said they had downgraded the stock to "sell" from "hold". NO OBJECTION Comet had attracted offers from a small number of turnaround specialists including investment firm OpCapita, Reuters reported in July. Restructuring firm Hilco UK was also reportedly interested. Knight Vinke, the activist investor which holds 20 percent of Kesa, said in July it would have no objection to Comet being sold provided an acceptable price could be achieved. However, analysts reckon any potential bidders would want a sizeable dowry from Kesa to cover working capital requirements, a pension deficit and lease liabilities. Giving details of Comet's recent performance, Kesa said sales at stores open more than a year plummeted 22.1 percent in the three months to July 31, although gross margin did improve 80 basis points. The decline compared with analyst forecasts of a fall of between 18 and 25 percent and partly reflected tough comparatives with last year, when sales were boosted by the soccer World Cup. Like-for-like sales at Kesa's Darty business in France fell 3.7 percent, against analyst forecasts of a fall of 4.2 to 6 percent, while the gross margin was up 10 basis points. Kesa said Darty was outperforming a French market that is weakening more than it expected. The group's total sales, which include established businesses in Holland, Belgium, the Czech Republic and Slovakia, and developing businesses in Turkey, Italy and Spain, fell 9.8 percent or by 9.9 percent on a like-for-like basis, with gross margin up 40 basis points. "With consumer confidence falling to a low ebb across continental Europe and the UK , market conditions are likely to remain challenging for some time," said Falque-Pierrotin. Separately on Thursday, Kingfisher , Europe's No. 1 home improvements retailer, beat first-half earnings forecasts. ($1 = 0.635 British Pounds)