UPDATE 2-Retailer Kingfisher perplexed by poor June trading

Thu Jul 24, 2014 4:54am EDT

* 10 weeks to July 12 total sales up 0.8 pct

* Like-for-like sales down 1.8 pct

* Markets slower than expected, particularly France and Poland

* Shares biggest fallers on pan-European index (Adds detail, executive, analyst comment, shares)

By James Davey

LONDON, July 24 (Reuters) - Kingfisher, Europe's largest home improvements retailer, suffered a sharp slowdown in trading in June, particularly in France and Poland, and said on Thursday it did not know why.

The firm, which runs the B&Q and Screwfix chains in Britain and Castorama and Brico Depot in France and other markets, had forecast a slowdown in its second quarter from the first, which was boosted by warm weather, and a strong year-ago period.

"However, our markets in Q2, notably in June, have been slower than anticipated particularly in France and Poland," Chief Executive Ian Cheshire said.

Kingfisher shares were down 7 percent in morning trade, the biggest fallers on the pan-European FTSEurofirst 300 index, taking the drop over the last year to 20 percent.

"It is unclear whether this recent weakness is short term phasing in nature, though we will know more by our interims in September having then traded through our key summer months," Cheshire said.

The company, which makes half its profit in France, noted Banque de France data showing sales for the overall home improvement market in that country rose 0.3 percent in May but fell 4.3 percent in June. That possibly reflected consumer uncertainty over the government's fiscal policy

Kingfisher, No. 3 in the world by sales behind U.S. groups Lowe's and Home Depot, trades from 1,134 stores in nine countries in Europe and Asia.

Cheshire said the firm was accelerating margin and cost initiatives to help support performance. Second-quarter gross margins were up in all markets.

Prior to Thursday's update, analysts were on average forecasting a pretax profit for 2014-15 of 780 million pounds.

Espirito Santo Investment Bank analyst Tony Shiret, who has a "sell" rating on the stock, expects consensus estimates to reduce by around 2-3 percent.

"Numbers-wise the issue is to what extent this revised level may keep slipping despite the probability that the group has moved onto a more defensive trading footing," he said.

Kingfisher's total sales rose 0.8 percent in constant currencies in the 10 weeks to July 12 and were down 1.8 percent at stores open over a year.

Total like-for-like sales had risen 6.1 percent in the first quarter as warm weather drove outdoor and seasonal products like barbecues.

Like-for-like sales at B&Q were down 3.2 percent over the 10-week period, compared with analysts' consensus forecast of a fall of 1.5 percent and a rise of 9.7 percent in the first quarter.

Sales on the same basis were down 0.9 percent at Castorama and 3.8 percent lower at Brico Depot, compared with analyst forecasts of up 0.6 percent and down 2.5 percent respectively. Like-for-like sales in Poland fell 3.5 percent.

Kingfisher said in April it had entered exclusive negotiations to buy smaller French rival Mr Bricolage. It said on Thursday the deal had become binding and would progress to anti-trust clearances. ($1 = 0.5872 British Pounds) (Reporting by James Davey; Editing by Erica Billingham)

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