Weak French market proves detrimental to Kingfisher

Weak French market proves detrimental to Kingfisher

Kingfisher's third quarter of 2015 was not as well as it had hoped, with a 6 % profit drop. The DIY company, which owns chains like B&Q, Screwfix, Castorama and Brico Dépôt, did perform well in Great Britain however.

Nearly 316 million euro profit

In the August - October period, Kingfisher managed to grow its group turnover (excluding exchange rate fluctuations) 4 % to 2.65 billion pound -  some 3.75 billion euro. In the end, it had a 223 million pound profit (316 million euro), down 6 % compared to the same quarter last year and 5 % below what analysts had expected.

 

Despite this drop, it does look good for the company as its British division performed well: like-for-like turnover (which ignores store openings) grew 4.6 % thanks to the UK housing market which bounced back. Its gross margin did drop because of an increased number of seasonal items, which carry a smaller profit margin. Thanks to cuts in its operational costs, Kingfisher did manage to present a 14.2 % profit increase in the United Kingdom: 80 million pounds (113.27 million euro).

 

French like-for-like sales remained level (+ 0.1 %) because of the weaker local economic situation and housing market. There is light at the end of the tunnel though: growth increased over the quarter. Castorama's like-for-like turnover dropped 0.2 % while Brico Dépôt added 0.4 %. Profit dropped 7.5 % (excluding exchange rate fluctuations) because of weaker gross margins and higher costs due to new store openings. The strong British currency also hacked into foreign revenue, meaning profit dropped 15.7 % to 109 million pounds (154.53 million euro).

 

Cost-cutting measures sped up

"Kingfisher's investment story is not focused on short-term forecasts for the (French) DIY market, but revolves around the cost-cutting measures the company hopes to finalize. We expect these measures to be implemented faster after the recent appointment of a new CEO", KBC financial analyst Kris Verheyen said in an investor update.

 

"Most important is how it can cut costs in the purchase process, by eliminating the middle men and by create a more efficient product range across all of its markets. It will also have to optimize its store network, particularly in the United Kingdom where it has already shut down more than 10 % of its onerous floor space."

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