Comet calamity as UK losses hurt Kesa

On paper, this has been a good year for Kesa Electricals. Its share price has soared by nearly 50% since the summer, and it's just posted a 50%+ increase in profits for the six months to October. But behind these headline numbers, a bad news story lurks - namely, the increasingly sorry showing of Comet, its UK arm, where losses have tripled to €6.4m. Now activist shareholder Knight Vinke has an influential voice in the boardroom (the main reason for its higher share price), it's no surprise that the City is wondering whether Kesa may soon be tempted to cut and run...

The overall Kesa group did pretty well during the period - revenues were up 2.5% on a constant currency basis to €2.8bn, while pre-tax profit was up 52.4% to €25m (which the mathematicians among you will notice is not a massively impressive margin). But Comet is definitely the laggard of the group: although it had a good first quarter, with the World Cup boosting flat-screen TV sales, things went rapidly downhill in the second quarter, with sales down 10% year-on-year. Kesa blamed tough market conditions, the snow, and the expensive brand revamp it's currently undertaking - but either way, the bottom line was that losses widened from €1.8m to €6.4m.

Since Darty, Kesa's European arm, seems to be doing pretty well at the moment, we imagine there were a few sparks flying in the boardroom when that result came in. Particularly since Kesa now has a very outspoken investor in the shape of Knight Vinke. The big bounce in Kesa's share price since the activist asset manager disclosed its holding back in June suggests the City is expecting it to shake Kesa up a bit - and there have already been rumours that it wants the group to cut its losses on Comet. With Darty apparently on fire across La Manche, today's figures seem to strengthen that argument, if anything.

London-based Kesa isn't having any of it, though (or at least not yet). It's in the middle of a three-year recovery plan for Comet, which includes revamping the brand, overhauling its stores and focusing more on online sales (which jumped 8% during the period, one of the few positives). But with short-term pressures like the VAT hike and the imminent challenge posed by the recent arrival of US company Best Buy (which will make competition even tougher), and the increasing trend towards us buying these big-ticket items online, it's a bit hard to see Comet becoming a world-beater again. And particularly now Knight Vinke is on board, sucking up further losses may not be an option.