(News Bulletin 247) – The agency on Thursday lowered the outlook associated with its long-term credit rating on the specialized distributor. The rating agency points in particular to the inflationary context in which Fnac Darty is operating, which should continue to weigh on household consumption behavior.

Fnac Darty’s confidence rating with Standard & Poor’s is eroding. The specialist distributor saw the outlook for its long-term credit rating “BB+” lowered from “stable” to “negative”. The rating agency justifies this reduction by less favorable market conditions for the company.

This negative outlook reflects Standard & Poor’s view that Fnac Darty’s operating performance “will face challenging business conditions and inflationary pressures.”

The rating agency also justifies its decision by “the negative impact of the fine imposed by the High Court of the United Kingdom in the context of the litigation linked to the liquidation of Comet UK”, an event which, for S&P, ” will reduce Fnac Darty’s ability to absorb poor performance”. In 2022, Fnac Darty was ordered to pay 132 million euros, to respond to this court decision in the United Kingdom. This dispute dates back to the sale in early 2012 of Comet, the former British appliance subsidiary by Kesa Electricals and tipped Fnac Darty’s 2022 accounts into the red. “We paid, but contested this decision,” the group’s general manager, Enrique Martinez, told AFP at the time.

However, Standard & Poor’s points to positive elements in its publication of the day. The rating agency praises the “high-end positioning” of the distributor and welcomes the “proactive cost management measures put in place”, which “should preserve profitability and credit indicators in line” with its expectations. “The premium positioning, the expansion of services and the savings measures implemented during the year enabled Fnac to maintain its profitability and post an EBITDA margin [excédent brut d’exploitation, NDLR] 7% in 2022, in line with our previous expectations” explains S&P.

Inflation at the head of the gondola of concerns

However, inflation will still play tricks on the specialized distributor in 2023. Fnac Darty expects its sales to be “slightly down” again in the first half of 2023, due to tensions on purchasing power which are pushing consumers to postpone their purchases of household appliances. “The combination of inflationary pressures weighing on demand for discretionary products and an ongoing competitive market landscape could put additional pressure on the group’s credit indicators,” warns S&P.

A context that puts pressure on Fnac Darty’s rating. S&P is brandishing the threat of a downgrade if Fnac’s operational performance does not recover in line with its expectations. The rating agency will, for example, be very vigilant to the evolution of several indicators including the adjusted EBITDA margin which must not “deteriorate structurally below 7%”, or the adjusted debt/EBITDA ratio which should not be “greater than 2x”.

If Fnac Darty shows discipline, the rating agency will award good points. It could revise the outlook to stable if Fnac Darty “succeeds in managing its performance in a weak macroeconomic environment, such that operating free cash flow after leasing recovers to more than 100 million euros per year, that the adjusted debt/EBITDA ratio returns permanently below 2, and that the adjusted EBITDA margin remains above 7%”

On the Paris Stock Exchange, Fnac Darty is moving against the trend and down 0.8% around 3:50 p.m., in a levitating Parisian market, driven by the sparkling publication of LVMH.