DIY group Kingfisher may be known for B&Q over here but France - where it trades as Castorama and Brico Depot - is its biggest market.
So with weak consumer confidence, higher taxes and a declining housing and construction market, its sales and profits across the Channel have tumbled down like badly built shelves.
In the third quarter French profits dropped 14% on sales down 9%, helping push overall sales down 0.9% to £2.8bn and profits down 7% to £225m. That was below forecasts of £227m and down from £271m this time last year. The numbers were hit by a £13m foreign exchange translation.
In the UK, B&Q and Screwfix sales were up 4.9%, benefiting from the stronger UK economy and the continuing strength of the housebuilding market. With the mild weather, sales of outdoor seasonal and building products were up around 3%.
Sir Ian Cheshire, who steps down as chief executive on 8 December, said:
Overall, we remain cautious on the outlook, especially in France, and continue to focus on margin and cost initiatives to support our performance.
All this has sent Kingfisher shares 10.3p or 3.5% lower to 293.5p in a market which is generally attempting to move higher. Retail expert Nick Bubb said:
The third quarter results today from Kingfisher are disappointing, with overall Retail profits 12% down at £225m, although downbeat noises about the key business in France were not unexpected. Nevertheless, like for like sales in France were down by 4% and reported profits of £120m were 14% down. The good old UK business did its bit for the group, with sales and profits up a bit overall, but that was all thanks to Screwfix, with B&Q not exactly setting the world alight. Elsewhere in Europe adverse foreign exchange translation decimated the contribution from Russia and Poland was also weak....We imagine that full year pretax profit forecasts will be coming back from the £700m-710m level of a few weeks ago to £670m-680m.
Over at Cantor Fitzgerald, analyst Freddie George said:
The third quarter trading update was worse than market and our expectations broadly because of lower than forecast profits in Poland and Russia and higher new development costs, in particular in Romania. Frances’s operating profits were also a little weaker than expected.
Following this update, we are reducing our ‘top end of the range’ 2015 pre-tax profit forecast to £710m from £750m taking earnings per share down to 22.2p from 23.4p, which compares to Bloomberg consensus of £706m and making similar revisions to our subsequent year forecasts.
We are maintaining our hold recommendation and target price of 330p until we see an end to the downgrades, with consensus 2015 earnings forecasts reduced by up to 20% over the last year. Nevertheless, Kingfisher is beginning to look interesting value assuming we have seen the last of the downgrades, considering the company’s ability to generate significant free cashflow, which has prompted a £200m share buyback in 2015, and its dominant market position both in the UK and France. The recent acquisition of Mr Bricolage will strengthen the company’s position in the French DIY market and will be accretive to earnings. The stock is rated at 13.3 times full year 2015 earnings.
Overall the FTSE 100 is up 6.17 points at 6735.96, with Germany managing to avoid recession. The strength of the US economy will be in the spotlight later with the latest GDP revisions due.
Petrofac continues to slide, after Monday’s news that profits would be lower than expected, partly due to the falling oil price. Its shares are down another 37.5p to 840p, the biggest loser in the leading index. Analysts were queuing up to cut their recommendations, including Barclays, Morgan Stanley, Deutsche Bank and Exane BNP Paribas.
Heading higher was Sky, up 26.5p to 921.5p, as Goldman Sachs restarted coverage with a neutral rating and 990p price target.
BT added another 5.4p to 399.5p after Monday’s news it was in talks with O2 and EE as part of a plan to get back into the mobile market in a big way.
