LONDON Kingfisher Plc (KGF.L), Europe's No. 1 home improvements retailer, is looking to further efficiency savings to offset a worse than expected sales fall and allow it to meet forecasts for yearly profit.
The group, which runs market leader B&Q in Britain and trades as Castorama and Brico Depot in France, is suffering along with other European retailers of "big ticket" items like kitchens and bathrooms, which are particularly vulnerable to fragile consumer confidence.
Yet the company is offsetting weak demand with a drive to improve profitability by buying more goods centrally, and directly, from cheaper manufacturing centres such as China.
It wants to increase common sourcing for all its brands from 2 percent to 50 percent and boost direct sourcing - or buying straight from manufacturers instead of via third-party distributors - to 35 percent from 15 percent.
"We have had a tough fourth quarter, ending what has been a tough year impacted by unfavourable foreign exchange, particularly poor weather in the UK and weaker consumer confidence in our major markets," said Chief Executive Ian Cheshire.
But Cheshire said the group, the world's No. 3 home improvements retailer behind U.S. groups Lowe's (LOW.N) and Home Depot (HD.N), was still winning market share and benefiting from its self-help initiatives.
Kingfisher, which trades from over 1,000 stores in eight countries in Europe and Asia, is also being squeezed by a continuing low level of housing transactions, since moving house is often associated with spending on home improvements.
It said fourth-quarter sales at stores open for more than a year fell 3.4 percent, deteriorating from a third-quarter decline of 2.8 percent.
But underlying pretax profit for the year to February 2 would be in line with analysts' consensus forecast of 715 million pounds ($1.1 billion), it said.
That outcome would be 11 percent below the 807 million pounds made in the previous year, but analysts' forecasts for 2012-2013 had been trimmed after British rival Homebase, owned by Home Retail Group Plc HOME.L, posted a poor sales update in January.
Shares in Kingfisher, which have proved resilient to the tough economic backdrop and remain not far from a seven-year high of 317 pence set last year, were down 0.9 percent by 1029 GMT, valuing the business at 6.5 billion pounds.
In Britain and Ireland, B&Q's like-for-like sales fell 6.4 percent in the fourth quarter, worse than analysts' consensus forecast of down 4.5 percent and reflecting the weak consumer backdrop - particularly in Ireland, where its nine stores are subject to an examinership, akin to administration in Britain.
In France like-for-like sales fell 0.4 percent at Castorama and 4.6 percent at Brico Depot. Analysts' consensus was for declines of 1.6 percent and 5.3 percent respectively.
The firm said margins in both Britain and France would be down, partly reflecting price cuts to drive trade.
Evidence of the sector squeeze had already come on Wednesday when Wickes, part of Travis Perkins Plc (TPK.L), posted a 7.6 percent decline in like-for-like sales over the first seven weeks of its new financial year [ID:nL6N0BK1JB]
Some sector observers see underlying problems which B&Q's self-help measures will do little to address.
"It will be interesting to hear (with full year results) on March 26 what the management think about the over-capacity in the UK DIY market and whether the collapse of its business in Ireland is a sign of things to come across this side of the Irish Sea," said independent retail analyst Nick Bubb.
($1 = 0.6535 British pounds)
(Editing by Neil Maidment and David Holmes)