LONDON (Reuters) - Kingfisher (KGF.L), Europe’s second largest home improvement retailer, reported weak quarterly sales in France and said it would pull out of Russia, Spain and Portugal, sending its shares lower and raising questions over its plan to increase profit.
The group, which across Europe trails France’s Groupe Adeo, is in the third year of five-year programme to raise annual profit by 500 million pounds from 2021. However, profits are forecast to go backwards in its 2018-19 year.
Kingfisher’s shares fell as much as 5.8 percent on Wednesday, taking losses for the year to more than 30 percent, after the group, whose main businesses are B&Q and Screwfix in Britain and Castorama and Brico Depot in France, reported a fall in underlying sales in its third quarter, with Castorama in continuing to trade particularly poorly and underperform the wider French market.
Chief Executive Véronique Laury, who has cut Castorama’s prices and revamped its marketing, warned “there is no quick fix” for that business.
“We believe Kingfisher’s transformation plan will not yield the margin benefits it was supposed to, so there will be more calls for a break-up, but in between a margin reset may be necessary,” said RBC Europe analyst Richard Chamberlain, who has a “sector perform” rating on the stock.
Kingfisher’s like-for-like sales fell 1.3 percent in the quarter to Oct. 31, reflecting the weak performance at Castorama France, where sales on the same basis slumped 7.3 percent - worse than analysts’ expectations of a fall of about 3 percent.
Laury said the margin outlook in France was uncertain given the difficult trading and the impact of recent national fuel tax protests.
“Castorama is likely to be still losing share to Leroy Merlin due to unified products not resonating with customers and a suboptimal digital offer,” said RBC’s Chamberlain.
Kingfisher’s plan for the group, costing 800 million pounds over five years, involves unifying product ranges across brands, boosting e-commerce and seeking efficiency savings.
“We are committed to our plan and to building a strong business for the long-term. As part of this commitment, we have taken the decision to exit Russia, Spain and Portugal,” said Laury.
“This will allow us to apply our strategy with more focus and efficiency in our main markets where we have, or can reach, a market leading position.”
Russia and Iberia account for about 7 percent of Kingfisher’s total sales. The loss-making Russian business trades from 20 stores, while Iberia, which is close to break-even, trades from 31 stores.
Britain, France and Poland account for 90 percent of Kingfisher’s sales.
Like-for-like sales in Britain and Ireland fell 0.7 percent in the quarter.
Prior to Wednesday’s update analysts were on average forecasting a full-year underlying pretax profit of 741 million pounds, down from 797 million pounds made in 2017-18.
Analysts said they expected forecasts to be downgraded by about 5 percent.
The stock was down 2.5 percent at 240.2 pence at 0923 GMT, valuing the business at 5.1 billion pounds.
Reporting by James Davey; editing by Kate Holton and Louise Heavens