Kingfisher Wary on Outlook as Main Markets Face Key Challenges

  • Shares slide as much as 5.6% in biggest drop since July
  • Retailer ‘going backwards’ in weak French market, analyst says

As leader in the French and U.K. home-improvement markets, Kingfisher Plc is in a bind.

Britain’s Brexit vote has created an uncertain economic outlook, the B&Q and Castorama stores owner said Wednesday. In France, the retailer said it’s cautious about prospects, especially in light of May’s presidential election.

Full-year results from the do-it-yourself giant showed sales in both markets missed estimates, sending shares down the most in eight months. The countries together make up more than 80 percent of Kingfisher’s sales, and with such doubts over the outlook, the vast majority of analysts have no better than a hold recommendation on the stock.

“In France, the group is going backwards in a weak market,” George Salmon, an analyst at Hargreaves Lansdown, said by e-mail. “With plenty of political and economic uncertainty swirling around Kingfisher’s main European market, it’s easy to see why it has adopted a cautious tone on the future.”

The stock fell as much as 5.6 percent to 326.1 pence in London and was down 5.4 percent at 10:14 a.m., the steepest drop in the benchmark FTSE 100 Index.

The performance of the French business caused particular concern among analysts. Sales fell 1.4 percent in the year ended Jan. 31, while the wider French home-improvement market shrank by 0.6 percent, the company said.

Chief Executive Officer Veronique Laury said on a conference call she was addressing the weakness by lowering prices and improving the company’s e-commerce offering.

Price Rises

Kingfisher’s performance has been stronger in the U.K. -- same-store sales rose 2.4 percent last year -- though here too the outlook is clouded.

While indicators from its trade-focused Screwfix format -- such as sales of expensive power tools and workwear -- don’t suggest an imminent slowdown in consumer spending, the fall in the value of sterling means Kingfisher will make some modest price rises on certain products this year, Chief Financial Officer Karen Witts said on the call.

The decision to raise prices comes as B&Q begins to face competition from Australian low-price chain Bunnings, which acquired U.K. rival Homebase last year and has just started to convert the stores to its own banner. Figures released yesterday showed U.K. inflation has eroded wage growth, threatening spending that has remained unexpectedly resilient since the U.K. voted to leave the European Union.

Kingfisher’s full-year adjusted pretax profit rose 8.3 percent to 743 million pounds ($926 million), beating estimates of about 724 million pounds as savings in areas such as media buying and printing came through earlier than expected.

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