Kingfisher Plc, Europe’s largest home-improvement retailer, said its key French market remains a source of doubt, while early signs of a U.K. recovery could take as long as nine months to translate into improving sales.
“In France and some other parts of the world there is still quite a lot of uncertainty,” Chief Executive Officer Ian Cheshire said today in a Bloomberg Television interview after Kingfisher reported little-changed first-half earnings. Recent increases in U.K. mortgage approvals have yet to translate into “big shifts” in store takings, he said.
Kingfisher gets more than half its earnings from France, where it owns the Castorama and Brico Depot chains. Figures yesterday showed French industrial production unexpectedly fell in July, suggesting economic growth may slow in the current quarter. Cheshire said he doesn’t expect analysts to increase earnings estimates following today’s report.
“In France, we see limited upside to earnings and margins which are already at record highs,” Freddie George, an analyst at Cantor Fitzgerald, said in a note. “The U.K. is unlikely to see the same gains as in previous upturns, which benefited from mortgage equity withdrawal and consumers taking on more debt.”
Kingfisher fell 2.2 percent to 410.8 pence at 9:14 a.m. in London, trimming this year’s gain to 44 percent. George raised his recommendation to hold from sell, saying there is limited downside until historically low interest rates are increased.
Adjusted pretax profit in the 26 weeks ended Aug. 3 fell 1.6 percent to 365 million pounds ($574 million), Kingfisher said, compared with the 367 million-pound median estimate of eight analysts’ estimates compiled by Bloomberg.
Earnings gained 11 percent at constant currency rates in the second quarter as a summer heat wave replaced the cool spring weather that led to lower first-quarter profit. Sales in the quarter rose 8.7 percent to 3.09 billion pounds.
“After a difficult first quarter, in which sales and profits were affected by record bad weather, we were able to capitalize on the better weather in the second quarter particularly in the U.K.,” Cheshire said in the statement. “Looking ahead, we remain ready to capitalize on any improvement in conditions or opportunities as they arise.”
Kingfisher ended the first half with net cash of 259 million pounds, though is not yet at the point of having surplus capital that can be returned to shareholders, Cheshire said.