Kingfisher Sees Improved Fourth Quarter as U.K. Sales Drop Beats Estimates

Kingfisher Plc, Europe’s largest home-improvement retailer, reported a smaller drop in sales at its B&Q shops than analysts had anticipated and said it expects revenue to improve in the year’s final quarter.

Third-quarter sales at U.K. and Irish stores open at least a year fell 4.2 percent from the same period a year earlier, when discounts to clear inventory boosted sales, the London- based company said today. That was ahead of a company-compiled consensus estimate of a 7 percent decline.

Chief Executive Officer Ian Cheshire said early signs are “encouraging” for sales of festive products like 44.98-pound ($70.25) pop-up Christmas trees and tinsel. Kingfisher, which also owns France’s Castorama chain, is assessing its next phase of growth including expansion into India and Brazil and enhanced online and mobile offerings to drive future earnings.

“The fourth quarter has started well and expectations are for B&Q” comparable sales to rebound to 4 percent growth, said John Guy, an analyst at Royal Bank of Scotland Group Plc. He has a “buy” recommendation. Guy had anticipated a like-for-like sales decline of 5.1 percent in the U.K. and Ireland.

Finance Director Kevin O’Byrne expects consensus estimates for annual pretax profit will “nudge up” by 10 million pounds to 660 million pounds, he said on a call to journalists today.

Kingfisher rose 0.5 penny, or 0.2 percent, to 238.3 pence at 9:41 a.m. in London trading. The shares have climbed 3.8 percent this year, compared with the 29 percent decline of Home Retail Group Plc, the owner of B&Q’s main U.K. rival Homebase.

Retail Profit

So-called total retail profit, which excludes one-time costs, interest and taxes, rose 8.2 percent to 240 million pounds. Earnings at the international division, which includes Poland, China, Spain, Russia, a joint venture in Turkey and a stake in Germany’s Hornbach, increased 18 percent. The unprofitable Chinese unit is expected to at least break-even next year, according to the retailer.

“We can count on the assumption Q4 will be better” Cheshire said. “We’re expecting a tougher six months in the U.K., but looking for some recovery in the second half.”

B&Q, the U.K.’s largest home-improvement chain, is dependent on the housing market, where a recovery is faltering as the government plans for the biggest spending squeeze since World War II. U.K. mortgage approvals fell to an eight-month low in October, a sign that the market slowdown is intensifying.

The U.K. home-improvement market will likely continue to decline between 2 percent and 3 percent next year, Cheshire said. He expects B&Q can outpace the market through the addition of its Tradepoint counters which target professional builders, enhanced products ranges and services.

France, Poland

“Sentiment is likely to remain depressed by the outlook for big-ticket expenditure and housing transactions, particularly in the U.K.,” Simon Irwin, an analyst at Liberum Capital, said before the release. He rates Kingfisher “hold.”

Kingfisher’s third quarter covered the 13 weeks to Oct. 30. Market conditions in France are “reasonably positive” while Poland is looking more stable, Cheshire said.

The retailer also announced that Clare Chapman, director general of workforce at the NHS and a former director at Tesco Plc, has joined as a non-executive director.

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

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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