Christmas fears for B&Q after profits slump by a half

Cut-throat competition among home improvement retailers could wipe out fourth-quarter profits at B&Q, the do-it-yourself retailer owned by Kingfisher, analysts warned yesterday.

Trading at B&Q continued to worsen in the three months to the end of October despite its attempt to lure shoppers with bargain deals, Kingfisher said. Despite investing heavily in lower prices and holding two promotional weekends, B&Q failed to drive sales. Retail profits at the chain sank to £50.3m from £106.7m the previous year during the third quarter after like-for-like sales fell 8.4 per cent.

CSFB, the house broker, said it was "possible" B&Q could make a loss in the next three months, despite adding: "This is not in our current forecast." It warned: "The moment of maximum numbers risk at B&Q is still in front of us, with the post-Christmas kitchen 'season' likely to be a desperate affair in our view." MFI, the distressed kitchens specialist that is due to unveil its own rescue plan today, is expected to promote heavily to compete.

Richard Ratner, at Seymour Pierce, said there was a chance B&Q would not make a quarterly profit for the first time he could remember. "It is not going to do very well in quarter four. There will be an extra 200 basis points off the margin," he said. B&Q also faces rising costs in the fourth quarter.

Citigroup told investors that, according to its "rough estimates", B&Q could make just £15m of earnings before interest and taxation against £110m last year. The travails at B&Q, which has suffered from the collapse in the housing market as homeowners have put off big projects, have seen City profit forecasts for Kingfisher fall from £770m at the start of the year to £440m.

B&Q's new chief executive Ian Cheshire wants to move the chain away from its traditional home maintenance roots to try to capture a bigger share of the broader home improvement market. The first new-look store opens in Luton in the spring. He is also shutting 22 stores, of which 18 will close during the fourth quarter.

Gerry Murphy, Kingfisher's chief executive, sought to distance problems in its UK market from a better performance overseas, particularly in France. He said: "We are dealing with specific issues around consumer confidence in the UK. The market is driven by a lack of confidence and we don't think that will change until house prices stabilise and we will have to wait until spring to call that."

He sought to reassure investors that the group was "very attached" to its dividend. His comments helped to buoy shares in Kingfisher by 4.75p to 225p.

In France, Castorama and Brico Depot surprised on the upside thanks to a stronger French do-it-yourself market. Retail profit from the two chains rose 16 per cent to £76.6m, helped by a 6 per cent rise in underlying sales. Kingfisher is also making progress in Asia, where it is focusing its efforts on the potentially lucrative Chinese market, although the region tipped back into a loss during the quarter.