Kingfisher says still waiting for UK consumer recovery
LONDON (Reuters) - Kingfisher, Europe's biggest home improvements retailer, reported a slight dip in profit on Wednesday and said it was too early to call an economic recovery in Britain, though it was encouraged by recent data pointing to an upturn.
UK retailers are still taking a cautious view of the market for the year ahead even though official data and surveys have shown an improving outlook for UK consumer spending, which generates about two-thirds of gross domestic product.
British Chancellor George Osborne said on Monday the UK economy had turned a corner and that its accelerating economy vindicated the government's austerity programme.
"While we're really welcoming the change in atmosphere and certainly the UK lending environment has fundamentally changed, I'm not sure we're there yet in calling a sustained economic recovery," Kingfisher's Chief Executive Ian Cheshire told reporters on Wednesday.
"The critical indicator for us is not so much the forward indicators (such as mortgage approval data) ... it's really what goes through the tills," he said, noting an expectation of a six to nine month lag in any improvement to the housing market feeding through to do-it-yourself expenditure.
He was speaking after the firm, which runs the B&Q and Screwfix chains in Britain as well as Castorama and Brico Depot in France, met forecasts with a 1.6 percent fall in first-half profit as a better second quarter was not enough to fully offset the impact of record cold weather in the first quarter.
Cheshire said the outlook for the French market, Kingfisher's biggest profit earner, was more uncertain than the UK, with its housing market and consumer confidence deteriorating.
Shares in Kingfisher, which have risen 48 percent over the last 12 months and hit a year high on Monday, closed down 2.7 percent at 408.5 pence.
That fall reflected the firm's cautious outlook and no return of cash to shareholders.
Having released an exceptional provision of 145 million pounds relating to the resolution of a French tax case, Kingfisher ended the half with net cash of 259 million pounds.
"As it stands at the moment we're not calling any capital surplus," said Cheshire, explaining there was still uncertainty over trading and a lack of clarity on future leases as the firm attempts to reduce B&Q's space.
Kingfisher, which trades from around 1,070 stores in nine countries in Europe and Asia, is the world's third-biggest home improvements retailer behind U.S. groups Lowe's and Home Depot. It has offset weak demand in many of its markets with a drive to improve profitability by buying more goods centrally, and directly, from places like China.
Cheshire said the firm would continue to focus on internal initiatives to drive growth, profit margins and cost savings.
"Investments in stores, a focus on value and the continued development of ranges and services put it in a strong position to take advantage of the upturn, when it eventually materialises," said analysts at Conlumino.
Kingfisher also plans to launch the Screwfix chain in Germany, with a four-store trial starting in summer 2014. The trial puts it in direct competition with Hornbach Holding, of which it owns 25 percent plus two shares of the voting capital.
Hornbach late on Wednesday said Kingfisher's representatives would step down from the supervisory boards of Hornbach Holding and its Hornbach Baumarkt unit with immediate effect.
The German DIY market is already well-penetrated and saw the insolvency of the Praktiker DIY store chain this summer, but Kingfisher said there was space for Screwfix, particularly as it serves trade customers.
Cheshire also said Kingfisher was interested in buying up some of the stores that are being closed by Praktiker.
Kingfisher made an underlying pretax profit of 365 million pounds in the six months to August 3 - in line with the average of analysts' forecasts according to a company poll, but down from 371 million pounds in the same period last year.
Total first-half sales rose 4.3 percent to 5.72 billion pounds, though like-for-like sales fell 0.8 percent.
The company raised the interim dividend by 1 percent to 3.12 pence.
(Additional reporting by Victoria Bryan in Frankfurt; Editing by Greg Mahlich and David Evans)
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