Kingfisher warns of further pain for B&Q

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The Independent Online

Britain's biggest DIY retailer unveiled another poor quarter, which saw underlying sales in its fourth quarter to 28 January fall 9 per cent. This was despite a drive to lower prices and slash the cost of kitchens and bathrooms, which hammered margins at B&Q. One retail analyst called B&Q's strategy a "transfer of wealth from shareholders to consumers".

Gerry Murphy, the group's chief executive, said prices had further to fall at B&Q as he held out little hope of an imminent recovery. "We expect the market to remain very competitive and B&Q to continue to have to promote," he added, admitting that margins "could slip further".

Shares in Kingfisher fell 1.75p to 226p yesterday after analysts downgraded their profits forecasts for the year to January 2007 to reflect the further threat to margins. The consensus forecast for next year dropped from about £460m to £425m, which is still higher than the £410m the group's house broker, CSFB, has pencilled in.

Mr Murphy, who ran the television company Carlton before taking the helm at Kingfisher in 2003, admitted he felt under pressure but said he had not lost the board's support. "There is always pressure on management when things are tough and this is no exception," he said.

In the past year, trading at B&Q has steadily worsened against a backdrop of a slowing housing market, prompting the group to reshuffle its top executives, sack staff and shut obsolete stores. It recently announced a move into new "softer" product areas to try to appeal to more people, especially women.

Christian Koefoed-Nielsen, retail analyst at Panmure Gordon, said: "If the underperformance continues, it is quite possible that people will start wondering if he is the right guy for the job." But he said investors were prepared to give Mr Murphy more time, particularly to see whether B&Q's new chief executive, Ian Cheshire, who used to run its thriving overseas operations, could make an impact.

Analysts estimate that underlying profits at B&Q more than halved last year to about £210m and that the chain barely made any money at all in the fourth quarter. Mr Murphy said the group's fate rested in the hands of consumers, whose confidence to embark on costly home improvement projects has been battered by falling house prices. He added that he was "moderately encouraged" by recent data showing a rise in the number of mortgage approvals and signs that house prices are stabilising. Its sales to the UK building trade improved.

The overall poor UK performance contrasted with stronger sales from its overseas, which contribute half of its profit and sales. On a like-for-like basis, sales at its French businesses, Castorama and Brico Depot, rose 2.5 per cent, while in the rest of Europe they climbed 19 per cent and in Asia were up 8 per cent.

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