Cost cuts help Europe’s Kingfisher lift profit hopes

Cost cuts help Europe’s Kingfisher lift profit hopes

London: Cost cuts and business improvements helped Europe’s biggest do-it-yourself retailer Kingfisher nudge up profit forecasts despite recent bad weather though it remained cautious on 2010.

“Customers, courtesy of the weather, really went into hibernation after Christmas and probably aren’t going to come out again until we see spring in the air," chief executive Ian Cheshire told reporters on Thursday.

Retailers across Europe are striking a cautious tone amid signs a tentative economic recovery has yet to boost consumer spending and fears that steps to bring down government deficits, like raising taxes, could hit confidence in the months ahead.

Cheshire said there were encouraging signs, like a pick-up in housing market deals and a trend towards do-it-yourself as cash-strapped consumers spend more time at home.

However, Kingfisher was planning conservatively and continuing to focus on cutting costs and boosting profit margins by, for example, purchasing more goods directly from cheaper manufacturing centres in Asia.

“We’re not really expecting any help from the market," Cheshire told a conference call.

Kingfisher, which runs market leader B&Q in Britain and Castorama in France, said sales at stores open at least a year fell 3% in the three months to 31 January, the fourth quarter of its financial year.

That included falls of 3.5% at B&Q, 4.6% at French chains Castorama and Brico Depot, and 4.7% in Poland as bad weather kept shoppers at home for much of January.

Gross profit margins, however, were “up strongly" at B&Q and flat in France, following a trend which saw Kingfisher raise profit expectations repeatedly throughout 2009.

Slightly Ahead

Kingfisher, which runs over 830 stores in eight countries, said it expected profit before tax and one-off items for the year ended January 31 would be slightly ahead of analysts’ consensus forecast of 540 million pounds ($844 million).

That would be up from 368 million the year before.

“While investors have been fairly unforgiving on companies reporting weak sales even if accompanied by good margin performance we believe that Kingfisher should be treated more sympathetically given the progress it has made in 2009-10," Credit Suisse analysts said in a research note.

At 0850 GMT Kingfisher shares, which surged about three-quarters in value in 2009 but have fallen around 7% so far this year, were up 1% at 215.3 pence, beating a 0.2% rise on the DJ Stoxx European retail index.

Shore Capital analyst Kate Calvert nudged up her full-year profit forecast to £545 million from £531 million and raised her rating on Kingfisher shares to “hold" from “sell".

Kingfisher, the world’s third-biggest home improvements retailer behind US groups Lowe’s Cos and industry leader Home Depot, said like-for-like sales in China jumped 29.2% in the fourth quarter.

That reversed a big fall in the same period the year before and could raise hopes a radical restructuring of the business there, which has included closing shops and trialling new store formats, could return it to profitability after heavy losses.