UPDATE 1-Darty says French turnaround plan starts to pay off

Thu Sep 12, 2013 4:40am EDT

* French Q1 sales down 0.4 pct l-f-l vs -2.7 pct in Q4

* French head office reorganisation making good progress

* Discusses solutions for Turkey, Czech Republic, Slovakia

By Dominique Vidalon

PARIS, Sept 12 (Reuters) - Darty Plc, Europe's third-largest electricals retailer, said sales improved at its core French business in the first quarter, as a turnaround plan started to pay off.

Chief Executive Regis Schultz said the plan would affect 375 administrative jobs out a total workforce of 11,500 in France. But it was too early to say yet how many job cuts there would be because Darty France had also just created 350 new posts.

The French retailer said that market conditions would remain challenging and this would put pressure on the group margins.

Like its larger rivals - Metro's Media-Saturn and Dixons Retail - Darty is battling weak consumer spending and competition from online retailers.

Darty, which has more than 450 stores in Europe, has responded by cutting costs, exiting loss-making operations in Italy and Spain and focusing on its core markets of France, Belgium and the Netherlands.

Schultz, who took over as CEO in April, told Reuters that Darty, which is looking to sell its operations in the Czech Republic, Slovakia and Turkey, was holding talks with "several investors" to "find the best solution" for these businesses.

Activist investor Knight Vinke, which owns 25 percent of Darty and has a seat on its board, has been pushing the company to accelerate the pace of change.

Darty on Thursday posted a 1.0 percent fall in like-for-like revenue for the first quarter to July 31.

Sales at Darty France, which represents 70 percent of group's total revenue, dropped 0.4 percent, which was a marked improvement from a 2.7 percent decline in the fourth quarter.

Darty France sales benefited from the introduction of a first-ever summer sale, a customer loyalty scheme, and also hot weather which boosted purchases of refrigeration and air conditioning equipment.

Online sales also grew 8 percent in France to represent more than 14 percent of total product sales.

Overall gross margin for the group was down 90 basis points in the first quarter, reflecting strong growth in smart phones and tablets and ongoing price pressure.

Darty shares, which have gained 35 percent since the start of the year, were down 1.3 percent by 0801 GMT.

" The next potential catalyst for the shares... would be any such disposals in Turkey and/or Czech/Slovakia," said N+1 Singer analysts in a note.