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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BBB issuer rating of Fnac Darty and assigned a Stable Outlook. Concurrently Scope has also affirmed the S-2 short-term debt rating and the BBB senior unsecured debt rating. Consequently, the under-review status for a developing outcome on the ratings has been resolved.

Scope notes that the acquisition of Unieuro results in a slight increase in leverage, driven by Unieuro’s higher Scope-adjusted debt/EBITDA*. However, Scope believes that the increase in leverage is temporary, and it will be offset by EBITDA growth in the short to medium term, while Fnac Darty will benefit from better diversification and a stronger market position thanks to Unieuro’s solid market share in the Italian electronics retailing market.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BBB- (revised from BB+). The acquisition of Unieuro strengthens Fnac Darty’s market position, underpinned by the Italian retailer's solid market share (17% in 2024 according to Fnac Darty). Unieuro shares similar competitive advantages with Fnac Darty, such as a growing online presence and an increasing focus on services that improves customer loyalty. This enhancement to the group's market position builds upon Fnac Darty’s already strong business risk profile, which benefits from its leading position in France. This includes a loyal customer base and significant market share as the first and second electronics retailer for brick-and-mortar and online purchases, respectively. The group's competitive advantage is further derived from: i) the high brand recognition of its main three brands (Fnac, Darty, and Nature et Découvertes) among French consumers; ii) the 52% omnichannel sales, with 30% online sales, optimizing shop network use; iii) the group’s gradual development towards other activities (e.g., “kitchen”) and services (repair, Darty Max), which has helped maintain volume levels in 2024 despite weak consumer confidence.

By entering the Italian market, the Group significantly enhances its geographical diversification. This expansion helps to partially address a historical weakness: its previously constrained geographical footprint compared to larger international peers like Ceconomy (BBB-/Stable). Ceconomy, with its broader European presence across 11 countries and larger revenue (EUR 22.2bn in FY 2022/23), benefits from greater protection against single-market downturns and online competition. However, following the acquisition (Unieuro reports EUR 2.6bn revenue in 2024), Fnac Darty is reducing its dependence on France to around 60% of future sales, from 82% on a standalone basis in 2024, thus achieving a more diversified revenue stream and a larger overall scale.

Profitability, as measured by the EBITDA margin, is historically higher than that of retail peers and has remained above 7% in recent years (2024: 7.1%). The high profitability is due to: i) solid pricing power, which has allowed the group to pass on inflation to customers over the years; ii) strict cost control in recent years; and iii) a favourable product mix with a higher selection of premium products compared to retail peers. Scope expects Fanc Darty to maintain the EBITDA margin at around 7% going forward. While the acquired Unieuro business has a lower average margin of around 5% (2024: 5.5%), post-acquisition synergies are expected to benefit gross margin and operating costs over the forecast period, thereby maintaining profitability. Nevertheless, Scope notes that still-weak demand and the economic downturn, as well as a shift in consumer habits, could impact sales across all categories, especially in the very competitive consumer electronics sector.

Financial risk profile: BBB (revised from BBB+). The financial risk profile benefits from consistent EBITDA growth and disciplined debt management. The company's strategic debt refinancing, while forward-looking, has come at the cost of higher debt expenses and lower interest coverage.

While the Unieuro acquisition was made without debt financing, debt/EBITDA increased slightly in 2024 (to 2.2x on a pro forma consolidated basis) vs. 1.8x in 2023, exceeding Scope's negative rating trigger of 2x. This was due to Unieuro's higher leverage, driven by a higher proportion of lease liabilities and despite a resilient EBITDA (EUR 549m on a standalone basis and EUR 565m including one month of Unieuro, vs. EUR 533m in 2023 on a standalone basis). Scope expects Fnac Darty to rapidly deleverage to below 2x in 2025, benefiting from steady EBITDA growth and a disciplined approach to debt management, with no plans for additional borrowing and a continued focus on operational efficiency.

EBITDA interest cover has been under pressure in recent years due to higher interest on leases and bond refinancing. In April 2024, EUR 300m of 1.875% senior notes due in May 2024 and EUR 350m of 2.625% senior notes due in May 2026 were refinanced with EUR 550m of 6% notes, reducing interest cover to 7.9x in 2024 from 9.3x in 2023. The ratio is expected to range between 6.5x and 7.0x in Scope’s forecast, as potential new refinancing might lead to increase in cost of debt, partially offset by EBITDA growth.

Free operating cash flow has been positive over the last two years, thanks to the disciplined management of working capital. Scope expects this metric to remain positive or break even due to the issuer’s solid inventory management and no expected capex increase. However, Scope’s conservative assessment of free operating cash flow/debt accounts for working capital swings typical of seasonal business. At the half year, cash in the bank is usually half the amount at the end of the year. Scope accounts for this cash fluctuation in its liquidity calculation by applying an annual haircut on restricted cash of approximately EUR 250-300m, which is the average difference between the half-year cash and the year-end cash.

Liquidity: adequate (unchanged). Liquidity is adequate. Available cash and free operating cash flow largely cover the short-term debt obligation in 2025 and beyond. Liquidity is also supported by a EUR 500m revolving credit facility and a EUR 100m delayed draw term loan, both committed until 2028 and undrawn as of 31 December 2024.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers have no impact on the issuer rating.

Outlook and rating sensitivities

The Stable Outlook reflects the expectation that consistent EBITDA growth will enable the issuer to quickly deleverage below 2x, following a temporary spike in debt/EBITDA driven by the consolidation of Unieuro. The EBITDA expansion, supported by internal efficiency and economies of scale, is also expected to help maintain EBITDA interest coverage above 6.5x.

The upside scenario for the ratings and Outlooks is:

• Further enhancement of the business risk profile, e.g. through broader geographical diversification, while maintaining a debt/EBITDA ratio below 2x and an interest cover around or above 6.5x. However, this scenario is currently considered unlikely.

The downside scenarios for the ratings and Outlook are (individually):

• Debt/EBITDA above 2x on a sustained basis.
   
• Interest cover of below 6.5x.

Debt ratings

Scope has affirmed Fnac Darty S.A.’s senior unsecured debt rating at BBB, in line with the issuer rating.

Scope has also affirmed the short-term debt rating at S-2. This affirmation reflects the group’s underlying BBB/Stable issuer rating and its adequate liquidity profile, with upcoming debt maturities comfortably covered by internal cash sources, committed credit lines of EUR 600m and good access to external funding (bank and capital market debt).

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action. Scope assesses Fnac Darty's environmental, social, and governance (ESG) performance favourably. The company's focus on product sustainability, particularly through initiatives like Darty Max and WeFix, is a positive ESG factor, as it reduces electronic waste. Furthermore, the 'enlightened delivery' option allows customers to minimize the environmental impact of their deliveries, further strengthening Fnac Darty's environmental footprint.

All rating actions and rated entities

Fnac Darty S.A.

Issuer rating: BBB/Stable, affirmation

Short-term debt rating: S-2, affirmation

Senior unsecured debt rating: BBB, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; Retail and Wholesale Rating Methodology, 26 April 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, the Rated Entities’ Related Third Parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Claudia Aquino, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 18 February 2019. The Credit Ratings/Outlook were last updated on 30 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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