September 19, 2018 / 6:26 AM / a month ago

Kingfisher slumps after French weakness hits profit

LONDON (Reuters) - Kingfisher (KGF.L), one of Europe’s biggest home improvement retailers, reported a 15 percent fall in half-year profits after a poor performance in France, leading to questions about the group’s ability to meet annual consensus forecasts.

FILE PHOTO: A Castorama shop, French retailer of DIY and home improvement tools and supplies, is seen in Paris, France, May 17, 2018. REUTERS/Charles Platiau/File Photo

Shares in Kingfisher, which owns the B&Q and Screwfix brands in Britain and Castorama and Brico Depot in France, slumped 5 percent after the results, which it blamed on a 30 percent drop in profit in its French business.

French customers tend to view Castorama as expensive, which has hit sales. Kingfisher said on Wednesday it needed to change that perception, improve prices and Castorama’s own label and online offering.

It said a plan was underway to help start that process, after it earlier in September replaced its French CEO.

For the full-year, Kingfisher said it expected gross margin to grow, despite a 40 basis point fall in the first half. It said work on pricing and improving logistics and stock efficiencies would underpin the rise over its 2018/19 full year.

But some analysts said the first-half result made the current consensus forecast look tough.

“When a lot of the headwinds are still there in places like France, pending what they say about gross margins and clarity around that, you’d have thought there would be pressure on the full-year forecast number,” Davy analyst Flor O’Donoghue said.

For the six months ended July 31, Kingfisher posted underlying pretax profit of 375 million pounds ($493.5 million) in the six months ended, down from the 440 million pounds it made in the same period last year.

Analysts estimate that 2018/19 full-year underlying pretax profit is expected to come in at 764 million pounds, according to a consensus quoted by Kingfisher on its website.

UK STRUGGLES

The UK and Polish businesses had shown solid performances in the period, although it noted that the outlook was mixed and said the retail environment was “making our task more difficult than we expected”.

In Britain, the DIY sector has struggled this year, with rival Homebase shutting stores and Wickes, owned by Travis Perkins (TPK.L), warning of tough trading, as consumers’ disposable incomes are squeezed and uncertainty connected to Brexit weighs on the housing market.

Shares in Kingfisher have slumped 27 percent this year compared to a 5 percent fall in Britain's bluechip index .FTSE.

Kingfisher is half-way through a five-year transformation plan to boost annual profit by 500 million pounds from 2021. The retailer says the plan, which involves unifying ranges across the group, is on track.

Hargreaves Lansdown equity analyst George Salmon said there were signs of progress in the plan, but cautioned there was a long way to go.

“It feels like for every job Kingfisher crosses off the to-do list, another appears. Sorting out the underperforming French divisions is becoming ever more urgent,” he said.

($1 = 0.7598 pounds)

Reporting by Sarah Young, Editing by Paul Sandle and Alexandra Hudson

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