Fnac darty: The Fnac Darty group is struggling to generate cash, the action drops

(BFM Bourse) – The specialized distributor released a first estimate of its results for 2022 on Tuesday evening. If the group has held up well in terms of its income, it has burned cash.

The contract of trust between Fnac Darty and the market takes a hit. The specialist in cultural property and household electrical equipment pre-published its results for the 2022 financial year on Tuesday evening, with a scathing setback on cash.

“The bad news comes from generating cash with a Free cash flow (FCF, free cash flow) expected at -30 million euros, well below our expectations”, notes TP ICAP Midcap.

In 2021, the group had generated an operational FCF of 170 million euros against, therefore, a negative figure expected last year.

The distributor explains that this difference is due for a third by the decline in its financial results. Added to this is “a deterioration in the working capital requirement with less collection at the end of the year” due to a level of sales in December lower than the group’s expectations “and inventories up by 40 million euros”, lists TP ICAP Midcap.

A lowered medium-term objective

As a result of this disappointing cash generation, Fnac Darty is forced to revise its medium-term objectives. The company headed by Enrique Martinez expected to generate a cumulative 500 million euros in free operating cash flow over the 2021-2023 period.

But given the performance in 2021 and 2022, Fnac Darty should generate more than 350 million FCF euros this year to meet this objective.

The company has thus given itself one more year to fulfill its commitment, now counting on generating these 500 million euros cumulatively over the entire period 2021-2024. The group has nevertheless confirmed that it wants to achieve an annual cash generation of at least 240 million euros from 2025.

Without too much surprise investors do not appreciate the announcement. Fnac Darty shares fell 6.4%, the largest drop in the SBF 120, Wednesday around 10:20 a.m.

“Given the importance of the generation of free cash flow in the evaluation of a value which has made it a factor of strength since the introduction, this is equivalent in a certain way to a ‘warning’ [avertissement sur résultats, NDLR] even when the average annual free cash flow target from 2025 is itself renewed at 240 million euros per year on average, a target which can be considered relatively ambitious”, Invest Securities analysis.

Turnover resilience

“Despite rather solid results, this disappointment on cash could lead to a new sanction on the title”, warned TP ICAP Midcap in a note published before the market opened. The design office adjusted its target to 54 euros against 61 euros previously. “We expect a difficult first half but the valuation, already on the mat, allows us to remain buyer of the file”, underlines TP ICAP Midcap.

Outside of cash, the company pre-released satisfactory results. Revenue fell 1.2% year on year in reported data to 7.945 billion euros according to unaudited data.

“This change is mainly linked to the decline in sales recorded in December for around -55 million euros, reflecting fewer volumes sold, in particular for the small household appliances and computer equipment categories which had particularly outperformed last year”, explained the company. Like most consumer discretionary brands, Fnac Darty suffered from pressure on purchasing power last year.

Current operating income for its part fell to around 230 million euros against 271 million euros in 2021, representing 2.9% of revenues against 3.4% the previous financial year.

The group will publish all of its financial results on February 23 after market close.

Julien Marion – ©2023 BFM Bourse

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