Cost cutting drives profits at Kingfisher

Tight stock control and better margins at its stores helped Kingfisher, the owner of B&Q in the UK and Castorama in France, report a rise in half-year profit in spite of falling sales.

But Ian Cheshire, chief executive, warned of a tough year ahead as government austerity programmes bite and consumers shy away from big-ticket items such as kitchens and bathrooms.

“There will be some good periods and some more challenging periods. Obviously with VAT and public sector unemployment and tax increases, 2011 is looking like it will be challenging,” said Mr Cheshire, who ruled out the chances of a UK double-dip recession.

“The more optimistic take on it is that we now know what we are going to be facing, and I think the more you come through to 2012, the clearer and more positive the picture is.”

Across the group, like-for-like sales dropped 1.3 per cent to £5.5bn, but retail profit rose 16 per cent to £402m. Earnings per share increased 23 per cent from 8.6p to 10.6p and the group held its interim dividend steady at 1.925p.

Kingfisher’s sales were dragged down by the weak performance of B&Q in the UK and Ireland. The retail chain, which makes up 40 per cent of Kingfisher’s turnover, suffered a 3.7 per cent fall in like-for-like sales to £2.3bn in the six months to the end of July. However, gross margin at B&Q still rose by 140 basis points, thanks to greater use of direct product sourcing and fewer promotions. As a result, retail profit at B&Q grew 15.8 per cent to £171m.

Kingfisher’s performance was better in France, where it also owns Brico Dépôt, which serves professional tradesmen. Like-for-like sales in France grew 1.4 per cent to £2.2bn, and retail profit rose 14 per cent in constant currency to £160m.

But there was a clear split between the French division’s two retail brands. Castorama, targeted at amateur DIY enthusiasts, had a 2.6 per cent growth in like-for-like sales, but at Brico Dépôt, sales fell 0.2 per cent to £1bn. Kingfisher shares closed up 3.3p to 222.2p.

Source : John O'Doherty - FT.com