Kingfisher’s results today were a bit of a mixed bag: UK like-for-like sales were down 6.8% to £947m last quarter, as the DIY market continued to soften – but total group sales were actually up 11%, thanks to the weakness of the pound boosting international revenues. B&Q sales were down 5.9% - but that was significantly better than the 9% drop analysts were predicting. Discounting has taken a bite out of margins – but the group is still on course to meet its full-year profit target. So you could forgive investors for being a little confused about how to react this morning…
There’s no question that this has been a horrible year for Kingfisher, along with all other DIY retailers. Fewer people moving house means fewer people shelling out on a nice new kitchen or bathroom to adorn their new pad. And it’s not just the UK that’s been feeling the pain: Kingfisher fared even worse in China, with sales plunging 31% on a like-for-like basis (it’s now re-thinking its entire strategy for the country). Unfortunately, with the housing market showing little sign of recovery, this is unlikely to change any time soon. B&Q boss Ian Cheshire even suggested today that there was little chance of sales bouncing back this side of 2011.
On the other hand, the troubles in the sector haven’t all been bad news for Kingfisher. We’ve already seen the demise of MFI, while Floors2Go and Focus DIY have also been having well-documented problems – and B&Q appears to have hoovered up some of their custom. As a result, the decline in sales wasn’t anything like as bad as the 9% predicted by its company broker Deutsche Bank. Post-Christmas discounting was also a factor – this meant a £17m hit to the bottom line, but Cheshire more than made up for it with a round of cost-cutting at head office. So he’s still expecting to hit his pre-tax profit target of £364m for the year to January 31.
B&Q also reported today that sales of kitchens and bathrooms were actually up last quarter – possibly a sign that some people have decided to accept the fact that they’re not moving house any time soon, and are re-fitting their current place instead. Nonetheless, 2009 is clearly going to be a tough year, so Cheshire is slashing the budget for store re-fits (from £2m per store to less than £1m) and will continue to keep a beady eye on his cost line as he looks to trim the group’s debt.
So far, the Cheshire approach seems to be going down well with investors. But the 2% drop in the share price this morning, after an early rally, underlines the fact that he can’t be expected to work miracles...
In today's bulletin:
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UBS coughs up names and cash in US tax probe
B&Q UK slide drags down Kingfisher sales
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