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Kingfisher profit tops forecast

Kingfisher, Europe's biggest home-improvements retailer, beat forecasts with a 23 per cent rise in first-half profit and says it would cut more costs to cope with tougher trading in the second half.

business Updated: Sep 18, 2008, 19:15 IST

Kingfisher, Europe's biggest home-improvements retailer, beat forecasts with a 23 per cent rise in first-half profit and said it would cut more costs to cope with tougher trading in the second half.

Shares in the owner of B&Q stores in Britain and Castorama in France climbed as much as 10.9 per cent on Thursday, as analysts largely left their full-year profit forecasts unchanged despite fears over a deteriorating UK housing market.

Kingfisher said B&Q was responding to customers' tighter budgets by launching a "25 pound room makeover," which includes a pot of paint, a lampshade and a piece of wall art.

It also said fewer promotions and stronger own-brand sales had helped it to improve profitability in France and that in Britain it had halved its target for cost growth to 2 per cent.

"Bearing in mind these are the biggest parts of the group, at more than 80 per cent of sales, combined they have the ability to outweigh other factors, namely short-term weakness in sales," Kaupthing analysts said in a research note.

Kingfisher, which runs about 800 stores in eight markets across Europe and Asia, said profit before tax, goodwill and one-off items was 214 million pounds ($381 million) in the 26 weeks to Aug. 2 on an 11 per cent rise in sales to 5.13 billion.

Analysts' average profit forecast was 203 million pounds, according to a company poll.

A stronger euro and Polish zloty, and a good performance in eastern Europe helped to offset bigger-than-expected losses in China, where the group is looking to close a handful of stores after rapid expansion and a drop in new house sales.

Sales at Beijing stores plunged 60 per cent when the Olympic Games were hosted in the city last month, Kingfisher added.

Group like-for-like sales for the first half were down 2.6 per cent, including a 0.7 per cent decline in France and a 4.8 per cent drop in Britain.

Kingfisher shares have halved in value over the past 17 months, hit by a slowdown in consumer spending growth across Europe and a housing market slump in Britain.

At 1300 GMT, the stock was up 10.3 per cent at 132.1 pence, valuing the business at about 3 billion pounds.

Last week, UK rival Homebase posted an 8.3 per cent drop in like-for-like sales for the 13 weeks to Aug. 30, including a particularly week performance in the last few weeks.

Official data on Thursday showed UK retail sales data rose a surprise 1.2 per cent in August from July, though the rise was driven by promotions and back to school shopping.

Kingfisher Chief Executive Ian Cheshire declined to comment on trading in August and September, but told reporters he expected markets to become "more challenging" and that tough trading conditions could continue "for a while yet."

Recovery plan

"Despite the better results than forecast, we will probably hold full-year forecasts flat due to our fears over the UK and China," JP Morgan analysts said in a research note.

Analysts currently expect Kingfisher to make a full-year underlying profit of about 377 million pounds, according to the average forecast of 18 analysts polled by Reuters Estimates.

Kingfisher shares have bounced from a 19-year low of 89 pence in July amid hopes Cheshire's seven-point recovery plan, unveiled in June, will bear fruit.

The plan is focused on improving profit margins, cutting costs, growing in France and eastern Europe and closing loss-making stores in China.

Cheshire gave a few more details on Thursday, saying the group would save money by reducing its number of suppliers and agreeing better terms with the remainder, and would also cut the cost of store refurbishments to between 1.5 and 2 million pounds from between 2 and 2.5 million previously.

He also said the main target for annual senior management performance bonuses this year would be achieving flat net debt, at constant exchange rates. Net debt was 1.45 billion pounds at Aug. 2, down from 1.56 billion at Feb. 2.

The group has undrawn committed bank facilities of 775 million pounds, with no significant debt maturities until 2010.

Cheshire told Reuters that Kingfisher would consider selling its 21 per cent stake in Germany's Hornbach if it was offered a good enough price, because it was not a core part of the business.

Kingfisher pleased investors last month by selling its less profitable Italian business.

Kingfisher shares have underperformed the DJ Stoxx European Retail Index by about 13 per cent over the past year.

ht epaper

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