Woolworths losses put damper on Kingfisher: Price cuts to clear computer games and toys push retailer into the red
Wednesday 14 September 1994
Alan Smith, chief executive, said the problem was partly that Woolworths had been concentrating too much on promotions and special offers and had neglected its core range. Some of the promotions were not successful and the group was left with excess stocks that had to be reduced in price to clear them.
In the first half, the write-off was pounds 57m, mainly of toys and computer games. It bought too many of these ahead of the Christmas trading period, but sales - particularly of computer games - proved disappointing.
Sales at Woolworths dropped 1.2 per cent to pounds 508m but the cost of clearing stock, together with pounds 1.7m for redundancies and pounds 3.5m extra depreciation, meant it lost pounds 6.9m compared with a pounds 2.1m operating profit last time. Its dependence on Christmas trading means the first half has traditionally been weak.
Woolworths' losses saw pre-tax profits at Kingfisher rise only pounds 6.1m to pounds 88.1m in the six months to July. That was despite a pounds 19.6m increase in the contribution from Darty, the French retailer acquired in May 1993.
Sir Geoff Mulcahy, Kingfisher's chairman, admitted that the results were 'less than satisfactory. I remain cautious about the UK retail markets, which continue to be highly competitive,' he said. His comments prompted analysts to downgrade forecasts for pre-tax profits by about pounds 20m to pounds 300m for the full year.
Kingfisher used the results presentation to set out its strategy and try to allay doubts about its performance and prospects, following its launch of an every-day low-pricing strategy, under which it aimed to offer consistent low prices to boost sales. Mr Smith said there had 'rarely been so many definitions, or so much confusion' about a retail strategy. The constant price-cutting by some businesses had confused customers, and the aim now was to offer consistent value. Service and range would remain a key part of the retail offer.
Kingfisher admitted, however, that it would take time to establish value in the mind of customers used to special promotions. The strategy is already being implemented in refurbished Comet stores - four were completed by the period end - and B&Q, with encouraging results.
Despite that, Comet slipped into loss in the first half, losing pounds 1.7m compared with a pounds 700,000 profit last time. Like-for-like sales dropped 6.7 per cent to pounds 211.3m.
Sir Geoff attributed that to fierce competition in the electrical market. 'I can't promise the measures we are taking will get a Darty-style performance overnight. But I am confident the increased focus on range and service and decreasing reliance on promotions will give it the edge over its rivals.'
Darty has been affected by the downturn in the French market, but it managed to push sales 0.5 per cent higher to pounds 441.6m. Sir Geoff said the group expected to add between six and eight Darty stores a year and saw the potential for up to 200 stores, compared with the 137 it has.
B&Q increased profits to pounds 44.5m, compared with pounds 41.6m. Kingfisher said the Warehouse stores - up to three times the size of its existing outlets - were performing well.
Superdrug improved profits by pounds 1.2m to pounds 14m despite a 2 per cent decline in sales as food and household products were dropped.
Earnings per share fell 3.4 per cent to 10p, but the interim dividend was maintained at 4.4p.
View from City Road, page 25
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