September 20, 2017 / 10:14 AM / a year ago

Kingfisher cautious on second half after profit rise

LONDON (Reuters) - Kingfisher (KGF.L), Europe’s largest home improvement retailer, reported an unexpected rise in first-half profit while taking a cautious view on the second half, given the economic and competitive backdrop in Britain and France.

The stronger first-half performance, maintenance of full-year earnings guidance and the group’s assertion that its five year restructuring plan was on track sent its shares as much as 8 percent higher.

Prior to Wednesday’s update the stock had fallen 15 percent over the last year on concerns over the scale of the restructuring and the company’s ability to deliver on it.

Kingfisher, which runs B&Q and Screwfix in Britain and Castorama and Brico Depot in France and elsewhere, is two years into a plan to boost annual profit by 500 million pounds ($679 million) from 2021. The plan, costing 800 million pounds over five years to deliver, includes unifying product ranges and improving e-commerce capabilities.

Kingfisher also wants to return 600 million pounds to shareholders through share buybacks.

Chief Financial Officer Karen Witts said the company’s second-half caution reflected two different dynamics.

“The caution in the UK is more around the macro economic backdrop and in France it’s more about the progress that we need to make ourselves,” she told reporters.

She said the company had not yet seen any significant change in British consumers’ behavior with regard to spending on ‘big ticket’ items such as kitchens and power tools despite a squeeze on their spending power as inflation rises and wage growth is subdued.

Separately on Wednesday official data showed British retail sales unexpectedly surged in August, boosting the chance that the Bank of England will raise interest rates in November.

“While the company did outperform already-low expectations, we still see substantial longer-term challenges as it progresses in its 5-year plan,” analysts at Barclays, who have an underweight/neutral stance on the stock, said.

Kingfisher said it remained “comfortable” with analysts’ consensus earnings expectations for its full 2017-18 year - earnings per share (EPS) of 26 pence versus 25.9 pence in 2016-17.

The group made an underlying pretax profit of 440 million pounds in the six months to July 31 - ahead of analysts’ average forecast of 426 million pounds and 1 percent higher than the 436 million pounds made in the same period last year.

Total sales rose 4.5 percent to 6.0 billion pounds and the interim dividend was raised 2.5 percent to 3.33 pence.

The outcome reflected solid growth at Screwfix and in Poland, which was offset by weak French markets and disruption from the restructuring, particularly as new product ranges were introduced and old ones cleared.

“We ... are acting on the causes of this disruption, which we are confident will ease,” Chief Executive Véronique Laury said.

“We have self-help plans in place to support our overall performance and remain comfortable with full-year profit expectations,” she said.

Laury dismissed analysts’ suggestions that value could be unlocked by breaking-up Kingfisher rather than restructuring it.

“The power of the group is to be together,” she said.

Editing by Paul Sandle, Elisabeth O'Leary and Jane Merriman

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