Problems in China and a sluggish UK market overshadowed a better-than-expected third-quarter performance for Kingfisher, the DIY retailer.
Sales in China fell by nearly a third like-for-like and third-quarter losses of £17m in this market were described by analysts as “shocking” and “horrible”.
David Jeary at Investec said the losses in China could wipe out strong profit growth in markets such as Poland and Turkey.
Elsewhere, Kingfisher is to close nine fledgling Trade Depot stores in its domestic market against a backdrop of falling sales, which were down 9.2 per cent on a like-for-like basis at £1.02bn in the UK.
UK retail profits fell nearly 20 per cent to £36m.
Trade Depot first opened its doors in 2005 and made a retail loss of £5m in 2007-08. Kingfisher said it would now focus its attention on developing B&Q and Screwfix in the trade market.
But in France, Kingfisher’s biggest market, its performance was comparatively robust, with sales down 1.2 per cent on a like-for-like basis at £1.02bn and retail profits up 2.2 per cent at £105m. Sales in Poland rose 18.9 per cent to £294m and retail profit was up nearly 20 per cent to £40m, boosted by strong consumer spending in housing and construction.
Kingfisher said it expected “more challenging times ahead”.
Ian Cheshire, chief executive said: “Consumer confidence has clearly been shaken over the past few months by international economic events and this has impacted demand in all our markets.”
But Mr Cheshire described Wednesday’s third-quarter figures as a “good result in this environment”.
In the 13 weeks to November 1, Kingfisher group sales declined by 5.1 per cent on a like-for-like basis to £2.6bn and retail profit fell by 4 per cent to £176m.
The company’s broker Credit Suisse pared back forecasts for the year to January 2010 from £346m to between £320m and £325m, following the announcement.
The shares closed down 3.9p at 115.6p on Wednesday.
●What seemed like a big opportunity in China has turned into a thorn in Kingfisher’s side. Kingfisher continues to bleed and may lose up to £50m in the current year from its Chinese operations. This has prompted some analysts to ask why an ongoing appraisal of the business, – whose troubles are not new – has not been completed. Kingfisher says its management team in China is relatively new and has needed time to address the issues. In other markets Kingfisher is at the sharp end of the retail slowdown. Consumers’ reluctance to spend on big ticket items such as kitchens and bathrooms and a sluggish housing market have taken their toll, especially in the UK, its second biggest market. Here margin performance has been volatile, and while France looks relatively healthy for now, there are concerns over thinning margins in coming months. Ian Cheshire’s team is experienced and respected and Kingfisher could also pick up business from the now defunct MFI. But even taking these into account, the stock, which trades on a prospective price-earnings multiple of about 12 for 2010, looks pricey.
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