B&Q owner Kingfisher today said soaring utility costs, household debt and fears over the housing market had all contributed to a sharp decline in profits.
Strong performances in continental Europe and Asia were more than offset by weakening home sales in the DIY sector in the UK as annual underlying profits fell from £661.4m to £445.7m, the firm said.
Like-for-like sales at B&Q fell 7.8% during the 52 weeks ended 28th January and Kingfisher said that the home improvement market has continued to weaken since then.
Chief executive Gerry Murphy said: “With the important spring and summer season still to come, it is too early to forecast the full year, although a continuation of the recent stronger mortgage and housing trends should provide some some support later in the year.”
As well as B&Q, Kingfisher owns Castorama and Brico Depot in France and has operations around the world, including China.
Kingfisher said a 15% decline in housing transactions and 8% fewer housing applications for home alterations in the UK compounded the weakness in demand for bigger projects such as kitchens and bathrooms.
B&Q estimates the repair, maintenance and improvement sector declined nearly 4% in the year – the weakest market for more than 10 years.
However, Murphy said B&Q’s new management team, which is led by Ian Cheshire, had initiated a number of changes aimed at turning round the fortunes of the chain.
Price promotions and dedicated “Service Squads” in 100 stores helped improve relative sales performance in the second half, while price cuts and improved stock availability are expected to boost sales this year, he said.
Seventeen less productive stores have been closed, while eight new mini-warehouses have opened.
New kitchen, tile and flooring ranges have been introduced, while 3,000 new products will hit the stores this year.
Over in France, Kingfisher outperformed the market with sales up 6%, while in the rest of Europe and Asia sales lifted 28% after 47 new stores opened in eight countries.
In the next five years, overall store numbers in Poland, Italy, Ireland, China and Taiwan are expected to double.
Shares in Kingfisher found support from a revaluation of the property portfolio to £3bn which analysts said could lead to renewed interest from private equity firms.
Mark Charnock, analyst at Investec Securities, said the UK market was hindered by the bad weather.
“We believe the housing market pick-up will help the DIY market before too long,” he said.
“However, the poor weather means B&Q will be behind the curve at the moment.”
Richard Ratner, research analyst at Seymour Pierce, said: “There is no quick fix for B&Q, as the whole operation needs re-engineering in terms of product, store layout and size of stores.”
Christian Koefoed-Nielsen, analyst at Panmure Gordon, said: “It’s difficult to see any quick recovery for the company.
“In fact, we expect this year’s profits to be lower than last year’s.”
References: EGi News 21/03/06
