Kingfisher Plc, Europe’s largest home-improvement retailer, gave a glum assessment of the business climate in France and reported U.K. sales that missed estimates, sending the shares down the most since 2009.
Consumer confidence in France “is still weak with no obvious signs of an imminent improvement,” Chief Executive Officer Ian Cheshire said today in a statement.
The owner of the Castorama and Brico Depot chains gets about half its profit from France, where the economy unexpectedly shrank in the third quarter as President Francois Hollande failed to revive corporate investment in the face of one of the world’s heaviest tax burdens. The London-based retailer’s French earnings were unchanged in the quarter, while same-store sales at the U.K. B&Q chain barely grew.
“The main miss is in France on increased costs” such as promotions, Barclays Capital analyst Chris Chaviaras said by phone. “However, the underlying performance it is less bad than feared. Castorama, for example, had really good topline growth and that’s important for longer-term thinking.”
Kingfisher fell as much as 6.5 percent in London trading, the steepest intraday drop since April 6, 2009, which Chaviaras called “a bit of an overreaction.” The stock was down 4.8 percent at 377 pence as of 10:44 a.m., cutting the company’s market value to about 8.9 billion pounds ($15 billion).
Business in France was hurt by a period of “promotional pressure,” Cheshire said on a conference call. The weakness of the local economy prompted many smaller competitors to increase their advertising “aggressively” in the quarter, he said.
An increasingly promotional climate in the country “is feeding into gross margin and operating costs,” Ben Spruntulis, an analyst at Exane BNP Paribas, said in a note.
Still, Cheshire said the “structural aspect” of the French market “remains pretty solid, so I don’t see this as a long-term shift.”
Group retail profit in the 13 weeks ended Nov. 2 rose 5.8 percent to 271 million pounds, or 1.7 percent at constant exchange rates, Kingfisher said.
Sales at French stores open at least a year were unchanged in the quarter, while retail profit in the country was also about the same as a year earlier at 140 million pounds. Excluding currency shifts, profit in France fell 5.6 percent.
In the U.K. and Ireland, same-store sales at the B&Q chain rose 0.4 percent, missing the 1.2 percent median estimate of 13 analysts in a Bloomberg News survey. Retail profit in the country gained 7.9 percent to 63 million pounds.
Screwfix, which sells tools and building materials to tradespeople, reported same-store sales growth of 11 percent in the quarter amid “encouraging early signs in the smaller tradesmen market,” according to the statement.