Kingfisher says France a worry in second half

Reuters Business News
Posted: Sep 12, 2012 6:23 AM
Kingfisher says France a worry in second half

By James Davey

LONDON (Reuters) - Kingfisher <KGF.L>, Europe's biggest DIY retailer, said trading conditions were likely to worsen in France, its most profitable market, as it reported first-half group profit missed forecasts, hit by poor weather and a strong pound.

Kingfisher, which runs the market-leading B&Q chain in Britain and Castorama and Brico Depot in France and elsewhere, said it was now more worried about its business in France than in Britain, a reversal of its thinking in the past three years.

"While the (French) market has been positive in the first six months, the uncertainty is really a product of political uncertainty," chief executive Ian Cheshire said on Wednesday, pointing to anxiety over President Francois Hollande's tax policies and people's attitude to the euro zone debt crisis.

"When it is less clear, customers tend to sit on their hands a bit more ... We are expecting a slightly more awkward next six months."

Cheshire said the British market was "bumping along", not growing and not seeing significant decline. Sales of higher-ticket items were holding up relatively solidly, he said, adding he detected "a slight sense of a post- Olympic feel good factor which, I think, if we get some more decent weather this month might set a new trend".

Cheshire said he would welcome government initiatives to stimulate the British economy, particularly those focused on job creation and improving infrastructure.

Kingfisher undershot forecasts with a 15.5 percent fall in first-half profit that reflected a hit to sales from dreadful summer weather in Britain and France and government austerity measures across Europe.

Falls in the value of the euro and the zloty - Poland is Kingfisher's biggest market in eastern Europe - also hit profit when converted into sterling.

Pretax profit before one-off items fell to 371 million pounds ($596 million) in the six months to July 28, compared with a forecast for 395 million in a poll conducted by the company.

Kingfisher estimated the record wet weather in northern Europe cost it over 30 million pounds profit as customer footfall fell and it had to cut prices to clear seasonal stock.

It said adverse foreign exchange movements cost it 25 million pounds, while 10 million pounds was spent accelerating the roll out of new common own brands in Britain.

"All that was a major challenge and certainly the toughest six months that I have seen in my four years as CEO," Cheshire said.

Total sales fell 3.3 percent to 5.48 billion pounds, with sales at stores open over a year down 2.8 percent.

"While weather conditions were certainly unhelpful, market concerns on weakening conditions in France and Poland will see consensus full-year profit before tax settle around 750 million pounds," Investec analyst David Jeary said.

Kingfisher shares, up 21 percent over the past year, were up 2.1 percent at 277.7 pence at 5:50 a.m. EDT (0950 GMT), valuing the business at 6.7 billion pounds.

Analysts said a net cash position of 29 million pounds, a 25 percent rise in the interim dividend to 3.09 pence and a positive assessment of Kingfisher's self-help potential in tough markets had supported the shares.

Many retailers are suffering in Europe as disposable incomes are squeezed by inflation, muted wages growth and austerity measures, and as shoppers fret over the implications of the euro zone debt crisis.

Kingfisher, the world's No. 3 home improvements retailer behind U.S. groups Lowe's <LOW.N> and Home Depot <HD.N> and trading from 988 stores in eight countries in Asia and Europe, has generally performed better than most.

It has tried to offset weak demand in many markets with a drive to improve profitability by buying more goods centrally, and directly, from cheaper manufacturing centers such as China.

(Editing by Dan Lalor)