Kingfisher Q4 underlying sales slow UPDATE

LONDON (Thomson Financial) - Kingfisher PLC, the global home improvement retailer, has reported a slowdown in fourth quarter underlying sales but forecast full year underlying pretax profit in line with the current consensus of analyst expectations.

Prior to today's statement analysts were forecasting a year to Feb 2 2008 profit before tax and exceptional items of about 380 mln stg, down from 397 mln stg in the previous year. Full year results will be announced on March 27.

Kingfisher said year end net debt is expected to be 1.6 bln stg, slightly higher than previous guidance, reflecting exchange rates.

For the 13 weeks to Feb 2 2008 the group, which trades from 780 stores in nine countries in Europe and Asia, saw total sales increase 4.0 pct on a constant currency basis to 2.18 bln stg.

However, sales on a like-for-like basis, which strips out the impact of new and closed space, fell 0.5 pct. They were up 1.9 pct in the third quarter.

Like-for-like sales at B&Q, Kingfisher's largest and most high profile business, fell 1.7 pct -- a deterioration from a decrease of 0.2 pct in the third quarter but better than some analysts had expected.

The group said B&Q's performance reflected the tougher retail environment, partly offset by sales growth from revamped large stores. It noted new decorative, bedroom and flooring ranges performed well.

B&Q's underlying gross margin rate was described as 'slightly up before range review clearance activity'.

'B&Q finished the year in better shape after the biggest year of change in its history,' said Ian Cheshire, the former boss of B&Q, who succeeded Gerry Murphy as group chief executive last month.

'By focusing on improving product choice, store environment and service for customers, B&Q now has a stronger platform to face what is expected to be a tougher consumer environment.'

In France, like-for-like sales at Castorama were up 3.0 pct, having been up 4.8 pct in the third quarter and were down 1.1 pct at Brico Depot, having been down 0.3 pct in the previous quarter. Gross margins in France improved due to higher own-brand sales penetration and an improved sales mix.

In the Rest of Europe division (Poland, Spain, Ireland, Russia, Turkey and Germany) like-for-like sales increased 4.4 pct, boosted by a strong end to the year in Poland, where like-for-like sales increased 12.1 pct.

But in Asia like-for-like sales fell 7.5 pct, reflecting the continued impact of the slowdown of new apartment sales in the major Chinese markets and changing supplier regulations.

'Kingfisher's international businesses, which account for more than half of group sales, continued to grow, with Castorama in France and Poland performing particularly strongly. Continuing this momentum will be our key international priority next year, along with addressing our performance in China,' said Cheshire, who has pledged to deliver 'a real step-change in shareholder value'.

Less than a month into the job he is planning a shake-up of the retailer's top management.

Talking to reporters he identified 'putting in place the right management teams' as one of his three key initial themes to unlock value.

He said management will be structured around 'a single unified retail group'.

'We're at the point now where we can move to a single worldwide home improvement business and run it on a more integrated basis than we have been able to in the past ... when Kingfisher was more of a conglomerate,' he explained.

Cheshire said his other two themes were targeting better cash returns from the group's existing businesses and a focus on improving its use of capital.

He said Kingfisher has already set more demanding target rates for returns on investment. This investment will be 'more narrowly focused on a few of our higher return projects'.

He also said his assessment was that 'all aspects of the group can contribute to a better use of capital' -- a statement which could be read as him shying away from the possible disposal of some businesses.

On the outlook for trading in 2008 Cheshire said it was too early to assess the likely impact of the global credit crunch on Kingfisher's businesses.

'As retailers we'll just carry on planning prudently with a focus on margins, costs and cash control,' he said.

He said like-for-like growth at B&Q would be hard to come by. 'We think we're planning fairly prudently for the year ahead and we're certainly not assuming any help from the market.

'Most commentators would say it's going to be fairly tough in 2008 so I'd rather see plans that rely on our own self help to deliver our bottom line ... than assume big sales leaps.'

Cheshire plans to outline more of his strategic thinking next month.

He said the board will make a decision on the final dividend payment in March. Sector analysts expect it to be slashed.

At 10.33 am shares in Kingfisher were up 3-3/4 pence, or 3 pct, at 135-3/4 pence, valuing the business at 3.19 bln stg.

Source: By James Davey, forbes.com