KarstadtQuelle returns to solvency

KarstadtQuelle has announced an end to the risk of insolvency with a €4.5 billion refinancing deal. The struggling German retail chain used its core property portfolio to back the deal, which was structured through a joint venture with Goldman Sachs.

According to the Financial Times the deal has, however, been criticized by analysts who claimed it lacked transparency. Announced amidst the release of unsatisfactory 2005 results, shares slid 3.1 percent on Monday.

Chief executive Tomas Middelhoff has concentrated on cutting costs and disposing of assets since assuming control in May of last year. He managed to raise €1 billion, mainly from the sale of smaller department stores and specialist retail outlets. Furthermore, 25,000 staff cuts were made.

With the €3.7 billion cash injection announced this week, Middelhoff said that the company's remaining €3 billion debt would be erased. “Paying off the group's debts opens new opportunities for us to develop and grow on the basis of a less capital-intensive business model,” he said.

The joint venture will include 174 properties, with 51 owned by Goldman Sach's Whitehall Fund and 49 percent owned by Karstadt. Goldman is further thought to be investing €100 million of equity, with the rest of the funding of the acquisition derived from debt.

The company said losses were reduced by 80 percent last year to €317 million, although sales fell 4.2 percent to €15.5 billion. Karstadt said that sales should rise “slightly” this year, but operating profits should see an increase of 20 percent from €544 million last year.

www.karstadtquelle.com
28 March 2006

KarstadtQuelle turns Q3 profit

German retailer KarstadtQuelle has turned a profit in the third quarter after losing €503.7 million (£341.7 million) in the same quarter last year. The company made an operating profit this quarter of €14.15 million. Sales in July, August and September, however, dropped almost 12 percent to €2.7 billion, compared with the same quarter last year. The company attributes the decline to a weak economy and political uncertainty in the wake of the German election stalemate that had shoppers more cautious than ever.

KarstadtQuelle said that full-year sales would drop by “a mid single-digit” percentage point, however quarterly revenues were slightly higher than analysts had initially expected. Chief executive Thomas Middelhoff told the FT that four of the company's five divisions were performing par with or above expectations. The catalogue business, which is currently undergoing restructuring, is even doing better than last year.

Middelhoff said that the company was embarking on the second phase of reorganisation, having sold a number of non-core businesses. Debt is now down 17 percent to €4.4 billion and the company is on track to cutting it to €3.3 billion by the end of this year, he said. To this end, KarstadtQuelle plans to sell its credit-card service for mail-order customers and the Hypothekenbank, its real estate financing business. These businesses could be sold for as much as €1.3 billion.

www.karstadtquelle.com
3 November 2005

KarstadtQuelle quits venture

The German retailer KarstadtQuelle AG reported yesterday that it was to sell its 82% stake in a three year old joint venture with the Starbucks Coffee International to the US coffeehouse chain.

The troubled retailer did not give any further details of the transaction, which is part of its restructuring plan. The plan includes selling a number of its department stores and cutting thousands of jobs. Due to German consumer unwillingness to spend, the company has been losing money steadily.

The sale to Starbucks gives the US company complete control over the joint venture which was launched in the fall of 2001. Germany has 37 Starbucks coffeeshops in 15 German cities. The over 450 employees employed by Starbucks will be kept on.

www.karstadtquelle.de
23 November 2004