Electricals retailer to press ahead with turnaround strategy as options for business are considered

Kesa Results - Year to April 30

  • Group sales E5.92bn (+2.2%)
  • Group adjusted pre-tax profit E93.2m (+2.3%)
  • Comet sales £1.54bn (-6.8%)
  • Comet retail loss £8.9m (previous year profit of £11.5m)
  • Comet like-for-likes -7.7%

There is no quick fix for embattled electricals retailer Comet’s problems and the retailer faces an “inch by inch” journey to recovery, managing director Bob Darke has revealed.

However, Darke - who took the reins in May after the abrupt departure of his predecessor Hugh Harvey - and bosses of parent Kesa insisted the retailer’s business model is not broken despite the likelihood of more losses in the current financial year.

They said there is no intention to shut the 249-store chain or initiate a large-scale closure programme but “strategic alternatives” such as a sale or joint venture structure will be considered. There has been interest from about 10 parties so far.

Darke maintained that the restoration of Comet’s fortunes would be built upon operational improvement and brand-building. “There is no silver bullet, it’s an inch at a time,” he said.

Immediate priorities will be to halt margin loss then increase margin by initiatives such as changes to the product mix to generate more sales of goods such as small domestic appliances and accessories, which typically bear a lower cost to sell and deliver more robust returns than some categories.

The retailer will continue to reformat its space following sales uplifts of 14% and gross margin uplifts of 12% last year at refitted stores.

Comet chiefs believe their mid-sized stores and focus on service make it well-placed to compete against rivals’ big sheds, which they say intimidate many shoppers.

Comet reported that only two of its shops do not break even and contributions from another 31 are “not fully absorbing Comet’s fixed cost base”. 17 of those will be shut or exited, another nine “right-sized” and seven refurbished.

Kesa chairman David Newlands said that the evaluation of strategic alternatives should be completed “within months”.

He said that options would be benchmarked against Comet’s recovery plans and the likely value to shareholders compared before any decision is made on the chain’s future. “We will give the turnaround plan a chance, definitely,” he said.

He said the number of store exits planned was within Comet’s typical annual range and that it was “absolute rubbish” to suggest there were flagship stores among those affected.

Arden analyst Nick Bubb said: “It is hard to know where we are in the cycle for UK electricals retailers and it is entirely possible that things could get worse.

“Comet’s losses could easily worsen this year to over £20m and that would do a lot of damage to the Kesa bottom-line, notwithstanding the resilience of Darty in France.”