B&Q seeks home improvement

U.K. D.I.Y market leader B&Q sold 5,000 World Cup gnomes, 1,922 soccer bean bags and 2.9 million meters of hose pipe — enough to stretch from London to Moscow — in the second quarter of its fiscal year.

That’s all well and good. But, unfortunately, the lion’s share of B&Q sales comes from much larger, “big ticket” purchases like kitchens, bathrooms, bedrooms and building products. At this end of the scale, consumer demand has fallen away.

Many economists expect the upturn in the U.K. economy to be slow and fragile as the coalition government could be forced to cut public spending and impose taxes again later this year to reduce the budget deficit. This will hit consumers’ discretionary, nonessential purchase income.

And it is a macroeconomic pressure felt beyond the U.K. In Germany, Praktiker Bau -und Heimwerkermaerkte posted falling second-quarter sales as the home improvement rival was affected by a slower–than-expected recovery in the European economy.

It’s a fact not lost on the chief executive of Kingfisher, B&Q’s parent company. Ian Cheshire said the group, which operates in several European countries, is trading in an “uncertain environment.” Kingfisher, Europe’s largest home improvement retailer, failed to keep investors happy after it reported a drop in quarterly sales and gave a cautious outlook. The stock fell over 2% in intraday trading as one of the bigger laggards on the FTSE 100.

B&Q same-store sales in the U.K. and Ireland slid 4.4%. Arden Partners analyst Nick Bubb called the result “disappointing” and said the business there is under pressure. As well as facing a difficult trading environment, the group said the top line was hit by a reduced promotional offer and the rollout of Tradepoint, a service for the builders merchant industry.

Kingfisher is not alone in being cautious. At the end of June, Home Retail’s Homebase — B&Q’s main U.K. rival — said it expects continued tight cost management to offset a weaker top line this year.

Nonetheless, Kingfisher said it remains on track to meet its first-half profit expectations. It is focused on cutting costs and driving higher-margin sales across the group’s major markets by scaling down promotions, reducing inventory and sourcing more products directly from cheap manufacturing centers like Asia. This has allowed its gross margins to bounce.

It posted a stronger performance from France, where it operates Castorama and Brico Depot stores. Sales, up a relatively modest 2.6% on a like-for-like yearly basis, were also boosted by refreshing product lines with new ranges and store modernizations.

Source : Simon Zekaria - Wall Street Journal