Revenues at Comet electrical stores have been confirmed to have fallen by massive 22% in the last three months leading to more specualtion about the retailer’s future.
The French parent company blamed weak trading and a tough benchmark as sales were boosted a year ago by the World Cup.
Kesa‘s chief executive said a decision would be made by Christmas about whether to dispose of Comet. “We announced at our full-year results in June that in parallel to a turnaround plan at Comet, we’d assess other strategic alternatives,” said Thierry Falque–Pierrotin. “The process is ongoing.”
Kesa said in its results that the weak performance at Comet was anticipated and its turnaround plan was delivering results. Although reports like those delivered by the BBC’s Watchdog programme claiming that stores are mis-selling extended warranties will no doubt do Comet no favours as, according to reports, the sales of these warranties constitute much of the profit generated by the retailer.
A shift towards more profitable products had boosted gross profit margins at its UK subsidiary by 0.8% of revenues, the firm said.
Kesa also claimed that Comet sales had shown “an improving trend through the quarter”.
“The start of the year has been tough against the strong World Cup comparatives of last year and weakening market conditions. Nevertheless, the implementation of our strategic actions helped to deliver increased gross margin, further progress on our cross channel web strategy and market share gains in France, Belgium and Turkey.” said Mr Falque–Pierrotin.
“We will continue to implement our strategy of growing a cross-Channel, service-led, specialist model, adapting our plans to meet an increasingly challenging market environment.”
The poor results follows a 6.8% slump in sales at Comet revealed in June, pushing the UK electricals business into a 10m-euro (£9m) loss.
The company has confirmed the closure of 17 Comet stores and “right-sizing” of a further nine in the next three years.
Buyers For Comet?
The word is, from some quarters, however that all potential buyers have walked away from any potential deal leaving Kesa with no option but to try to turn around the fate of Comet but this was called into question over the weekend by a report in the Telegraph. Rumours are also still circulating internally within the industry that US retailer Best Buy may step in and snap up Comet at some stage.
The Telegraph’s James Quinn reports that, “Despite speculation last week that the sales process had ended, it is known that the terms on offer from Hilco, the restructuring specialist which in July sold the remnants of Habitat to Home Retail Group, are more favourable to Kesa‘s management than those of OpCapita, the turnaround specialist where John von Spreckelsen is operating partner.”
He goes on to say that talks between the three parties are expected to continue this week, and although there is no fixed deadline, it is thought the battle could be reaching a conclusion. But in other reports it is quite clear that Kesa will take a decision on the fate of Comet by Christmas.
It is not known what either side has bid in financial terms, but it is known that the size of the potential dowry from Kesa to the successful bidder – to cover Comet’s £49m pension deficit – remains an issue.
The Sunday Telegraph understands that Dixons Retail, Comet’s main British rival, has retained Colliers International to draw up a list of proposed store disposals as part of its plan to restructure its UK base. Spokesmen for Kesa and Dixons Retail declined to comment.
However a report in the Gaurdian says that Knight Vinke is understood to be looking to block the sale of Comet if Kesa agrees to pay a buyer to take it off its hands.
Other options, such as a joint venture, are being considered by financial adviser Bank of America Merrill Lynch according to reports. This may lend credence to the Best Buy rumours that seemingly refuse to die.
In recent weeks, it has emerged that private equity bidders Hilco and OpCapita want Kesa to pay a dowry of up to £200m to cover Comet’s pension deficit of £40m and to furnish working capital.
“What they are saying is Comet is more than worthless; some shareholders could find that hard to swallow,” said one market analyst.
Sources say Knight Vinke considers Comet is worth something, although it could settle for a nominal £1.
Logistics & Service
It is also reported that the group is working on plans to consolidate its 14 regional service centres to two sites, and reducing the warehouse network from three to two as part of a retender of logistics services.
Actual service centers have already been scaled back
Kesa said the service centre consolidation and logistics retender remained on target.
At this point little more in known about the possible future for Comet Service.
IS COMET BEYOND LIFE SUPPORT. Anyone who has experienced Comet’s terrible customer ‘service’ will not be surprised by these figures. The problems appear to be systemic and if not grasped by senior management then one can see how they could become terminal. Currently Comet are repeatedly issuing delivery dates that they know they cannot possibly meet. Either no one has told their sales department or sales have chosen to do an ostrich act by burying their heads in the sand. After all why not get the order then tell the customer that you cannot meet the date you have promised and hope they don’t cancel the order. Perhaps anyone iterested in buying Comet should have a long hard look under the bonnet and not just at the financials!!