Kingfisher Gains on Earnings Growth Goal, New Store Plans

Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, rose in London trading after setting new earnings-growth goals for managers and saying it plans to expand through store openings and enter new markets.

The shares rose as much as 15.5 pence, or 6.4 percent, to 259.3 pence, the steepest advance in more than three months.

For senior managers to get the maximum award under a new incentive program, earnings per share must grow by an average of 15 percent in the three years through January 2014, London-based Kingfisher said today in a statement. Adjusted earnings per share in the final year of the plan would need to be 31.2 pence, compared with the 20.2 pence reported today for fiscal 2011.

“This is a reassuring set of results,” said Caroline Gulliver, an analyst at Execution Noble who has a “buy” rating on the stock. “An encouraging earnings-per-share target implies that management believe they can generate consistent growth despite evident macroeconomic pressures.”

Kingfisher said today it plans to open more than 240 stores to increase the total to more than 1,100. Most of the openings will be in Poland and Turkey as well as Screwfix trade outlets in the U.K. this year, with capital expenditure to climb to as much as 450 million pounds.

Brazil, India

The retailer will also consider new markets such as Brazil, India, Indonesia and eastern Europe, and will assess adding to new formats in China and Russia.

“We can see the potential in the market,” Chief Executive Officer Ian Cheshire said on a call with reporters. “We haven’t yet decided to commit to full expansion, if we felt we couldn’t make money then ultimately you would have to withdraw.” Cheshire said he sees scope for 125 stores in Poland, from 59 today, as well as opportunities in France and the U.K.

The owner of the B&Q chain in the U.K. and Castorama in France updated its strategy today to include a focus on making home-improvement easier. As much as 50 percent of products will be common across all stores, including lighting and garden furniture, compared with 5 percent now.

“The strategy is subtle, lacking big, easily modeled initiatives such as store growth or new markets, but is not necessarily the worse for that,” Simon Irwin, an analyst at Liberum Capital, said in an e-mail. He raised his recommendation on Kingfisher shares to “buy” from “hold.”

U.K. Budget

The retailer also reported adjusted pretax profit of 670 million pounds ($1.09 billion) for the fiscal year ended Jan. 29. That was ahead of the 667.9 million-pound average estimate of 22 analysts compiled by Bloomberg.

The move in yesterday’s U.K. budget to cut fuel prices will have a “big direct impact on customers” and the plan to help first-time buyers will help the retailer, Cheshire said.

The U.K. market will still be a “bit tricky” in the first half and “slightly better” in the second half, Cheshire said. The executive said price inflation is about 1 percent to 2 percent.

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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