Kingfisher fourth quarter: What the analysts say

“Sales figures are broadly in line with weak expectations (UK were slightly below our expectations, France slightly above), but the gross margin has been invested in both France and the UK to fund price investments and promotions in France and the UK. 

“Within the UK & Ireland, B&Q LFL sales were down 6.4%. Gross margins are expected to be down due to additional promotions in December to remain price competitive with the market and a higher trade mix. No numbers have been given on the scope of this decline but we expect 50-100 bps.  

“Within France Castorama LFL sales beat our expectations slightly, down 0.4%.  

“Management is guiding to pretax profit in line with consensus expectations of £715m (we are forecasting £718m with recent forecasts ranging from £693m to £722m), so are not downgrading – this has been achieved by cost savings in labour (lower bonuses) and advertising.

“We are in line with consensus average of £795m for FY14, this is within a wide range of £730m to £824m and we would expect some downwards pressure on the top end of the range. 

“In the medium term, there have been some signs of growth in the UK housing market and given the very bad weather in Spring 2012 we believe Kingfisher could gain significant sales momentum in the UK in FY13/14.” Espirito Santo analyst Caroline Gulliver

“Erratic weather and a cautious consumer meant another weak quarter for the DIY sector and, as the UK’s leading specialist, Kingfisher has inevitably been exposed.

“A 2012 survey by Conlumino found that only 33.8% of consumers say they enjoy DIY. The majority, therefore, are happy to put off bigger projects in particular. This is especially the case when the economy is unsettling people, spending power is weak and the unpredictable weather makes working outdoors more difficult.

“Within this performance Kingfisher has some reasons for hope. The smaller Screwfix business continues to grow, at 10.3% up, due to new outlets which are admirably meeting the needs of trade buyers.

“B&Q can partially blame [its like-for-like fall] on extensive discounting to protect share in tough conditions. Moreover, the business continues to evolve to better meet the demands of shoppers and diversify into new areas of growth.

“The UK DIY market remains cutthroat with sales falling by around £1bn in 2012 and the relatively recent exit of Focus in 2011 providing little respite. Kingfisher needs better weather and an improved housing market if it is to see a stronger 2013.” Conlumino research director Matt Piner

 “The key news is that a tough year ended in line with expectations, in terms of full-year profits, and there are, reassuringly, no more downgrades today (because the consensus PBT forecast had already come down to £715m).

“The UK has been the big worry, with B&Q reporting another big LFL sales decline of 6.4%, despite weaker gross margins, although the growth of the highly profitable online business Screwfix helped to limit the overall UK decline to only 5.8% LFL.

“Kingfisher are great believers in “self-help” and the power of market leadership, but it will be interesting to hear what the management think about the over-capacity in the UK DIY market and whether the collapse of its business in Ireland is a sign of things to come across this side of the Irish Sea.” Independent analyst Nick Bubb