Kingfisher First-Half Profit Slips Amid European Wet Weather
Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, reported the first decline in mid-year earnings since 2006 as Britain’s record summer rainfall led to a slump in sales at the B&Q do-it-yourself business.
Adjusted pretax profit fell almost 16 percent to 371 million pounds ($596 million), the London-based company said today in a statement. That was less than the average estimate of 398.8 million pounds compiled by Bloomberg from 11 analysts.
Wet summer weather in the U.K. and northern Europe reduced profit by more than 30 million pounds, the company said, as fewer customers bought barbecues and garden furniture, causing Kingfisher to reduce prices to clear inventory. Earnings at B&Q, the largest U.K. home-improvement chain, fell 20 percent, while profit also declined in France, the biggest source of earnings.
“The miss was driven by the U.K. in particular,” Gillian Hilditch, an analyst at JPMorgan Chase & Co. in London, said in a note. “Macro weakness in France is also concerning.”
Kingfisher fell as much as 3.8 percent in London trading and was down 0.1 percent at 272 pence as of 9:36 a.m., extending yesterday’s 3.3 percent decline in the stock.
So-called retail profit in the U.K. and Ireland declined to 145 million pounds at constant currency rates. In addition to the weather, earnings were reduced by about 10 million pounds by the cost of accelerating the introduction of common own-brands across the country, the retailer said.
Kingfisher also cited adverse currency movements from translating profit made in euros and Polish zloty into sterling, which it said reduced profit by 25 million pounds.
“It was the toughest six months that I’ve seen in my four years” at the company, Chief Executive Officer Ian Cheshire said on a conference call today. He said he isn’t expecting any immediate improvement in the retailer’s markets.
“Whilst an uncertain economic backdrop has been a feature of our markets for some time, we recognize that this is unlikely to improve for a while,” the CEO said in the statement. “The U.K. looks like it’s bumping along,” he said on the conference call. “There’s a feeling of steady-as-you-go.”
Retail profit in France, where the company has Castorama and Brico Depot stores, fell 4.9 percent to 191 million pounds. At constant currency rates, profit rose 2 percent.
The weakness of the French market “is really a product of political uncertainty” stemming from government tax policies and instability in Europe, Cheshire said.
France has faced uncertainty because of the euro debt crisis as unemployment in the country is at a 13-year high. Same-store sales there fell 0.6 percent, Kingfisher said.
Cheshire is seeking growth by directly sourcing more of Kingfisher’s products from suppliers, opening and refurbishing stores, offering in-store collection and building the retailer’s higher margin, own-brand offerings.
Kingfisher said in March it plans to boost profit by an additional 300 million pounds over five years through measures that include creating a YouTube channel with instructional videos for its B&Q chain in the U.K. An eight-point plan to enhance earnings also includes adding common product ranges across all outlets, cutting the cost of buying merchandise, and testing a new format in China. The aim is to increase like-for-like sales by an additional two percentage points and widen gross profit margins by one percentage point.
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