Kingfisher Misses Estimates as Sales Drop in France, Britain

Kingfisher Plc, Europe’s largest home-improvement retailer, said third-quarter profit slid as sales declined more than analysts expected in France and Britain, its two biggest markets.

So-called retail profit fell 5.9 percent to 257 million pounds ($412 million) in the 13 weeks ended Oct. 27, missing the 259 million-pound average estimate of 12 analysts compiled by Bloomberg. Sales at U.K. and Ireland stores open at least a year retreated 3.8 percent, the London-based company said today in a statement, while revenue in France declined 2.8 percent. Both results were below analysts’ estimates.

Kingfisher’s markets “remain challenging, with consumer confidence still weak,” Chief Executive Officer Ian Cheshire said. The CEO is seeking to protect profit by directly sourcing more products from suppliers and adding common product ranges across all outlets, cutting the cost of buying merchandise.

“Concerns about the impact of the macro environment are likely to persist,” Warwick Okines, an analyst at Deutsche Bank AG with a hold recommendation on the stock, said in a note.

The shares fell as much as 2.2 percent in London trading and were down 1.3 percent at 276.9 pence at 9:18 a.m., trimming this year’s gain to 10 percent. That’s less than the 29 percent increase for the FTSE All-Share General Retailers Index.

Improved Margins

In the U.K. and Ireland, where Kingfisher’s B&Q is the nation’s largest home-improvement chain, retail profit rose 5.7 percent to 59 million pounds. Gross margins at B&Q widened by 0.5 percentage point due to cost cutting amid what the company called a “generally weak” selling climate. British consumers are under pressure as inflation accelerates while the economic recovery struggles to gain momentum.

Earnings in France, the company’s largest source of profit where it operates Castorama and Brico Depot stores, fell 9.2 percent to 140 million pounds, or 1 percent at constant currency rates, as house building slowed. French housing starts have declined 5.7 percent over the past year, according to government data, and jobless claims soared to a 14-year high in October.

“The backdrop in France remains very uncertain,” Cheshire said on a conference call, as consumers delay spending amid uncertainty about how much they will pay in taxes next year while the government mulls increased levies to jump start the stalled economy. “It’s a temporary period of uncertainty.”

1,000th Store

Kingfisher, which opened its 1,000th store in the quarter, also cited adverse currency movements from translating profit made in euros and Polish zloty into sterling, which it said reduced profit by 16 million pounds.

“We continue to be concerned that the decline in fiscal 2013 earnings is not just down to the one-offs of the extreme summer wet weather and the decline in the euro, but is also structural,” Freddie George, an analyst at Seymour Pierce, said in a note published today.

Profit in Kingfisher’s international business, which includes a 21 percent stake in Germany’s Hornbach Holding AG plus stores in Spain, Russia, Poland and China, fell 8.2 percent, or 2.4 percent at constant currency rates. “Tremendous growth” and new stores in Russia were offset by “very weak” sales and lower profit in Poland, Cheshire said. Earlier this week, Hornbach cut its annual sales and earnings forecasts because of weakening consumer confidence across Europe.

Chinese profits declined because of higher marketing costs, the company said. The first of Kingfisher’s so-called “do it for me” format stores should open in Shanghai in February next year, Cheshire said on the call.

Sales at stores open at least a year dropped 2.8 percent across the entire Kingfisher group.

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