Kesa Electricals, which was once part of the UK's Kingfisher retail combine, yesterday announced weaker than expected Christmas sales in its crucial French market.
The group operates the Darty and BUT chains in France, and together they account for two thirds of Kesa sales. But market leader Darty registered only a tiny increase in like for like sales between November 2 and January 3. The BUT operation - which also sells furniture - reported a 0.2% decline.
French retailers are battling weak consumer demand, but analysts had expected better, with consumers splashing out on digital products and flat-screen televisions. Analysts at Teather & Greenwood described the figures as "adequate, but certainly no more".
The group's Comet business in the UK has been hit by a downturn in the sale of extended warranty policies alongside electrical goods. Kesa reported total Comet sales - including gains from new shopfloor space - ahead 3.6%, and like for like sales ahead 3.9% on last year's levels.
It chose to exclude sales of warranties, however, and count only product sales. Warranties are exceptionally profitable for electrical retailers, but last year's Competition Commission investigation into the policies alerted many would-be buyers to the possibility that they might be unnecessary, and sales were hit.
Analysts have estimated that up to 80% of Comet's profits are generated from the sale of warranties. The company has disputed this figure but refuses to provide a more accurate one.
Yesterday the group confirmed that the slump in warranty sales had hit gross margins, but chief executive Jean-Noel Labroue said he remained confident of delivering profits in line with expectations as a result of a pick-up in recent sales and a "continued programme of cost control". City forecasts suggest that profits will come in at £170m.
Ian MacDougall of Teather & Greenwood rates the shares - which closed down 6.5p at 253.5p - a hold, but says Kesa needs an upturn in the French economy for growth.
Kesa was demerged from Kingfisher last July at 193p, and Tony Shiret at Credit Suisse First Boston said: "It's pretty much going according to plan."
From The Gaurdian