(News Bulletin 247) – The specialist distributor saw its accounts fall into the red in 2022, weighed down by 10-year-old British litigation. The first half of 2023 will not be much better, the fall in consumption and the rise in energy costs will penalize Fnac Darty’s business performance. Speculation around the title, however, could restore the appeal to investors, said an analyst.

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The contract of trust between Fnac Darty and the market was a little shaken on Friday. The distributor gives ground to the Paris Stock Exchange while the accounts published Thursday evening after the stock market show a net loss group share at the end of its 2022 financial year.

The outlook for 2023 is lower than the consensus, the course of business in the first half of Fnac Darty is set to be disrupted. Inflation will weigh on household consumption behavior and on Fnac Darty’s energy bill.

A 10-year-old dispute

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As for the year 2022, the distributor has been caught up in its past. Fnac Darty was ordered to pay 132 million euros, to respond to a court decision in the United Kingdom. This dispute dates back to the sale at the beginning of 2012 of Comet, the former British appliance subsidiary by Kesa Electricals – the former owner of Darty for a symbolic 2 pounds, to the investment company, OpCapita. Despite this takeover by the fund, Comet was liquidated and creditors turned against Fnac Darty, which in the meantime bought Kesa Electricals in 2016.

“Whether or not they considered Comet to be solvent at the time of the disposal, they undoubtedly knew that there was a risk of insolvency proceedings,” Judge Sarah Falk was quoted as saying. FinancialTimes.

This dispute tipped the accounts of Fnac Darty, which show a net loss group share of 28 million euros against a consolidated net profit group share of 160 million euros in 2021. “We paid, but contested this decision,” the group’s general manager, Enrique Martinez, told AFP.

Fnac Darty’s sales fell by 1.2% year on year in published data to 7.95 billion euros in 2022. Like most consumer discretionary brands, Fnac Darty suffered from pressure on purchasing power last year. These figures are not a surprise. The distributor had already given a first glimpse of its annual results in January, and had on this occasion warned about its consumption of cash.

Current operating income for its part fell to around 230 million euros against 271 million euros in 2021, representing 2.9% of revenues against 3.4% the previous financial year. The current operating margin was down 0.5% despite “the improvement in the gross margin of 80 basis points (0.8 percentage point) to 30.3% benefiting from a favorable mix (Darty Max subscribers went from 5,000,000 at the end of 2021 to 800,000 at the end of 2022)”, underlines TP ICAP Midcap in its note of the day. In October 2019, the distributor launched Darty Max a subscription repair offer to promote product durability, in line with the long-term strategy of Enrique Martinez, the boss of Fnac Darty.

A side exit to come?

But inflation will still play tricks on the specialized distributor. He expects his sales to be “slightly down” again in the first half of 2023, due to tensions over purchasing power which are pushing consumers to postpone their purchases of household appliances.

“We are expecting a complicated first half while consumption remains sluggish” adds Florent Thy-tine, the analyst in charge of covering the stock. To illustrate this trend, the analyst cites the figures published this Friday by the Banque de France which indicate a drop of 4.7% on audio and video equipment and -2.8% on household appliances in January 2023 against January 2022. .

The group also foresees a significant increase in its energy-related costs estimated between 30 million euros and 50 million euros. The distributor had to urgently find a new electricity supplier, Solvay Energy Services having decided to unilaterally revise its tariffs.

The current operating result is expected for its part around 200 million euros, “perfectly in line” with the estimates of TP ICAP Midcap, which adds that it is “lower than those of the consensus”.

“Of course, the main thing was not so much in the results of the group already known but rather on the rumors of Daniel Kretinsky’s rise in capital” abounds Florent Thy-tine. Fnac Darty had gained more than 10% in session Thursday after BFM Business reported that the Czech businessman wanted to buy the 20% held by the German Ceconomy in the capital of the French company.

Asked by AFP, the group’s managing director, Enrique Martinez, explained that it would not be “very delicate on (his) part to take the side of one shareholder rather than another”. He confined himself to saying that he had “good relations with his shareholders” and that “as long as there are no concrete things, we as management cannot position ourselves”. According to TP ICAP Midcap, the valuation of Fnac Darty is “very reasonable and speculation around the title could restore its appeal to investors”.

Pending a possible movement in capital, Fnac Darty is down sharply on the Paris Stock Exchange. The title of the distributor yields 6.7% in reaction to this swing of the accounts in the red and to the prospects tarnished by inflationary tensions. He had gained 7.7% at the close on Thursday, driven by rumors of a capital increase by Daniel Kretinsky, reported by BFM Business.