Murphy rattles retail sector with first Kingfisher profits warning

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Kingfisher was forced to issue its first profits warning since Gerry Murphy took over as chief executive two years ago after sales collapsed at its core B&Q do-it-yourself chain.

Kingfisher was forced to issue its first profits warning since Gerry Murphy took over as chief executive two years ago after sales collapsed at its core B&Q do-it-yourself chain.

Mr Murphy blamed the warning, which wiped more than £400m off Kingfisher's market valuation, on the worsening consumer slowdown that has prompted similar alerts from groups such as Whitbread, Boots and Carpetright.

Kingfisher admitted that like-for-like group sales are expected to have fallen by 6 per cent during its first quarter which ends on Saturday, before the first May bank holiday. The drop in sales will hit reported retail profit for the period by about 15 per cent, it said.

Shares in the group slumped 7 per cent to 254.25p as analysts took a knife to their profit forecasts. Dresdner Kleinwort Wasserstein cut its pre-tax profit target by 18 per cent to £610m - well below the £670m Kingfisher reported last year. Consensus fell by about 10 per cent to £650m.

The extent of the slowdown, which followed a 0.6 per cent rise in underlying group sales during its fourth quarter, amazed the City. "People are somewhat mystified as to why it's happened so quickly," one analyst said. Even Mr Murphy confessed that he was surprised. "Honestly, I was a bit, yeah," he said. Analysts estimated that like-for-like sales at B&Q fell 8 per cent during the period and by 4 per cent at its French business, Castorama.

The trading update was issued alongside the news that Kingfisher had swooped on its second-biggest international competitor in China, paying an estimated £125m to £150m for 13 stores from Germany's OBI. Mr Murphy said it was "hypothetical" as to whether he would have updated the market had it not been for the Chinese announcement, adding: "We're not giving any profit forecasts."

The former chief executive of the broadcaster Carlton said it was for "others to judge" where the blame for Kingfisher's slowdown lay, but admitted that the group had been slow to update some of its ranges at B&Q. "My reading is that most of this is down to market weakness. As far as we can tell we're not losing market share," he said.

"Because of the characteristics of our business in the first quarter, it's not clear how much of the slowdown is down to seasonal factors and how much is down to the weakness of the market."

Striking a glum tone, Mr Murphy added: "To the extent that consumer weakness is driven by macro factors like tax, pensions and fuel, it is hard to see things improving in the short term. The next relief consumers will see will be in the form of the next interest rate cut, some time later this year or early next year. I expect this to be quite a difficult consumer environment over the next 12 months. That's as clear as anyone can be at the moment."

Not all of Kingfisher's rivals in the UK are finding life quite so tough. Travis Perkins, the building materials group, reported yesterday that underlying sales at Wickes had fallen by 2.7 per cent since it acquired the chain in February. And GUS recently said like-for-like sales at Homebase increased 2 per cent during its second half.

Kingfisher said sales to trade customers, via its Screwfix outfit in the UK and Brico Depot in France, had held up. Total group sales are expected to be flat for the quarter to 30 April, it added, despite a further slide in sales at its Polish Castorama sites, which have been hit by a rise in the country's VAT rate.

Mr Murphy said he was not planning "any knee-jerk reaction" to the sales slump at B&Q, but analysts questioned whether the chain's everyday low pricing strategy would be enough of a lure for consumers if the slowdown continued.

But Chinese expansion continues

Kingfisher has high hopes for B&Q in China, where it already tops the do-it-yourself market. Yesterday's purchase of 13 stores from Germany's OBI should boost its estate to 50 stores within the next 12 months, putting it on a par with the food giants Wal-Mart and Carrefour in terms of international retailing clout in the country.

Its Chinese arm reported retail profit of £5m last year on sales of £212m. Taking out OBI removes the number four player and strengthens its foothold around Shanghai. It also makes it harder for Home Depot, the US giant, to establish a foothold in the world's most populous nation, analysts said.

Kingfisher did not disclose the cost of the deal, but analysts estimated that it paid up to £150m for OBI's business.