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Kingfisher Drops as French Sales Miss, U.K. Margin Narrows

July 19 (Bloomberg) -- Kingfisher Plc, Europe’s largest home-improvement retailer, fell the most in seven weeks in London trading after sales missed estimates in France and increased discounting fueled concern over profitability.

The shares declined as much as 3.2 percent, the steepest intraday drop since June 1.

French same-store revenue slid 2.3 percent in the 10 weeks to July 7, compared with the average estimate of analysts polled by Bloomberg for a 1.9 percent gain. London-based Kingfisher gets more than 40 percent of sales and half of profit from the country, where lower sales at the Brico Depot chain outweighed growth at Castorama stores. An increase in sales at B&Q in the U.K. was fueled by discounts, reducing profit margins, it said.

“The weaker performance in France, the most important territory for group profits, and the gross margin hit in the U.K. will be viewed negatively,” David Jeary, an analyst at Investec Securities, said in a note.

Kingfisher shares fell 1.4 percent to 271.3 pence at 11:25 a.m. in London, paring its gain this year to 8.2 percent.

Brico Depot, which supplies products to small builders and do-it-yourself enthusiasts, was affected by the timing of July public holidays in France, Kingfisher said. Same-store sales fell 4.8 percent in the 10 weeks, though the company said the decline for the whole quarter will be nearer 3 percent.

Record Rainfall

In the U.K. and Ireland, same-store sales at the B&Q chain rose 1.6 percent as the retailer stepped up promotions on indoor products like paint to lure shoppers soaked by record rainfall. The average estimate of seven analysts compiled by Bloomberg was for a decline of 0.2 percent. The division’s second-quarter gross margin is expected be down, the company said.

Kingfisher gets more than 40 percent of revenue from the U.K. and Ireland, where soggy weather has kept gardeners indoors. After the wettest June on record, England has already had 150 percent of the normal amount of rain it usually gets in July, the Met Office has said.

“With rain reaching almost biblical proportions we had to work hard to tempt customers out,” Chief Executive Officer Ian Cheshire said in an e-mailed statement. “We increased marketing and promotions to help encourage customers to repair, decorate and upgrade inside their homes.”

At B&Q, sales of indoor paint, designer wallpaper and fireplaces all rose in the quarter, spokeswoman Laura Jack said.

Garden Hoses

“The summer has been extremely wet across northern Europe, which has hurt sales of garden products, and will lead to heavier markdowns,” Deutsche Bank AG analyst Rod Whitehead said in a July 4 note. Sales of B&Q’s garden hoses declined 38 percent in the quarter, Jack said.

Kingfisher is seeking growth in countries including Poland and Russia to help offset declines in Britain. Sales in Poland rose 1.5 percent and revenue increased 49 percent in Russia.

Across all of Kingfisher’s banners, sales in the 10-week period dropped 0.4 percent at stores open at least a year.

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

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

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