LONDON: Kingfisher, Europe’s second largest home improvement retailer, reported weak quarterly sales in France and said it would pull out of Russia, Spain and Portugal, sending its shares lower and raising questions over its plan to increase profit.
The group, which across Europe trails France’s Groupe Adeo, is in the third year of five-year programme to raise annual profit by £500 million ($640 million) from 2021. However, profits are forecast to go backwards in its 2018-19 year.
Kingfisher’s shares fell as much as 5.8 per cent on Wednesday, taking losses for the year to more than 30 per cent, after the group, whose main businesses are B&Q and Screwfix in Britain and Castorama and Brico Depot in France, reported a fall in underlying sales in its third quarter, with Castorama in continuing to trade particularly poorly and underperform the wider French market.
Chief Executive Véronique Laury, who has cut Castorama’s prices and revamped its marketing, warned “there is no quick fix” for that business.
“We believe Kingfisher’s transformation plan will not yield the margin benefits it was supposed to, so there will be more calls for a break-up, but in between a margin reset may be necessary,” said RBC Europe analyst Richard Chamberlain, who has a “sector perform” rating on the stock.
Kingfisher’s like-for-like sales fell 1.3 per cent in the quarter to October 31, reflecting the weak performance at Castorama France, where sales on the same basis slumped 7.3 per cent — worse than analysts’ expectations of a fall of about 3 per cent.
Laury said the margin outlook in France was uncertain given the difficult trading and the impact of recent national fuel tax protests.
“Castorama is likely to be still losing share to Leroy Merlin due to unified products not resonating with customers and a suboptimal digital offer,” said RBC’s Chamberlain.
Kingfisher’s plan for the group, costing £800 million over five years, involves unifying product ranges across brands, boosting e-commerce and seeking efficiency savings.
EXITING MARKETS
“We are committed to our plan and to building a strong business for the long-term. As part of this commitment, we have taken the decision to exit Russia, Spain and Portugal,” said Laury.
“This will allow us to apply our strategy with more focus and efficiency in our main markets where we have, or can reach, a market leading position.”
Russia and Iberia account for about 7 per cent of Kingfisher’s total sales. The loss-making Russian business trades from 20 stores, while Iberia, which is close to break-even, trades from 31 stores.
Britain, France and Poland account for 90 per cent of Kingfisher’s sales.
Like-for-like sales in Britain and Ireland fell 0.7 per cent in the quarter.
Prior to Wednesday’s update analysts were on average forecasting a full-year underlying pretax profit of £741 million, down from £797 million made in 2017-18.
Analysts said they expected forecasts to be downgraded by about 5 per cent. — Reuters
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