Bloomberg News

Kingfisher U.K. Sales Drop Eases, Led by Garden Furniture

December 01, 2011

(Updates with CEO comments starting in 10th paragraph.)

Dec. 1 (Bloomberg) -- Kingfisher Plc, Europe’s largest home-improvement retailer, said a revenue decline eased in the U.K. as warm weather boosted purchases of outdoor furniture, and reported third-quarter earnings that beat analysts’ estimates.

Sales at U.K. and Irish stores open at least a year fell 0.7 percent in the 13 weeks ended Oct. 29, the London-based company said today. That was better than the first-half’s 1.5 percent drop. So-called retail profit rose 14 percent to 273 million pounds ($428 million), beating the 263 million-pound average of seven estimates compiled by Bloomberg.

The owner of the B&Q chain said sales of outdoor seasonal products rose 12 percent in the U.K. and Ireland as it sold a one lawnmower a minute, helped by warm late-summer weather. Kingfisher also benefited from the collapse of competitor Focus DIY. The retailer acquired 29 former Focus stores and converted 27 to the B&Q format in the quarter.

“Top-line pressures in the U.K. appear to have moderated following the second-quarter slump,” James Grzinic, an analyst at Jefferies International in London, wrote in a note. “The reopened former Focus stores appear to be trading ahead of plan.”

Kingfisher shares rose as much as 5.5 percent in London trading, the sharpest increase since Sept. 15, and were up 3.6 percent at 264.90 pence as of 10:27 a.m.

The short-term outlook in Kingfisher’s main markets “remains challenging,” though the business “is in good shape,” Chief Executive Officer Ian Cheshire said today.

Direct Sourcing

Retail profit in the U.K. and Ireland gained 22 percent in the quarter to 56 million pounds as store openings boosted revenue 1.2 percent to 1.06 billion pounds. The unit’s gross margin widened by 0.5 percentage point, helped by savings from obtaining more products directly from suppliers.

“Potential worries over the French consumer have not emerged yet and the U.K. margin is very good,” Tony Shiret, an analyst at Royal Bank of Scotland Plc said by phone in London. He has a “buy” recommendation on the stock.

In France, where Kingfisher owns the Castorama and Brico Depot chains, same-store sales rose 1.9 percent in the quarter, slowing from 4.5 percent in the first half. The retailer said it continued to outperform the country’s home-improvement market. Castorama is modernizing stores, adding products and rolling out the ‘Do It Smart’ campaign to make home improvement easier.

French Resilience

The French home-improvement market rose about 2 percent, showing that it’s “pretty resilient despite the broader news flow” about Europe’s economic difficulties, CEO Cheshire said on a call to journalists. Kingfisher’s retail profit rose 16 percent to 154 million pounds in France as the gross margin widened by 0.8 percentage point, it said.

“It’s too early to call signs of a downturn in France yet,” Cheshire said. “Where you have seen more of a confidence issue is possibly in Poland where the consumer has had to cope with this massive devaluation” in the value of the zloty versus the U.S. dollar, which is hurting import prices.

Higher store opening costs also restrained retail profit in Poland, which slumped by 5 million pounds, Kingfisher said.

“It’s possibly too early to tell” the effect of the euro- region debt crisis on consumer purchases, because the impact may not come for three to six months after the start of the crisis, Cheshire said.

The CEO said the retailer has contingency plans for the possibility of a eurozone breakup, which could lead to opportunities to buy groups of stores from failed competitors.

“You can manage the business for cash, which we’ve done for the last three years, and reflect on the fact that in the middle of political clouds there are also going to be opportunities,” Cheshire said.

In China, where losses fell to less than 1 million pounds, Kingfisher has started to look at a more “radical format” that focuses on “do it for me” home improvement, rather than the classical western big-box format, he said. “We’ll start to see more detail early in the new year,” the CEO said.

--Editors: Paul Jarvis, David Risser

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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