LONDON (ShareCast) - (Sharecast News) - Kingfisher sales were much spruced up in the sunshine of the second quarter but the DIY retailer's margins were weaker than hoped due to further troubles in France.
The FTSE 100 group said it remained on track to reach the strategic milestones of chief executive Véronique Laury's five-year turnaround plan for the third year in a row, with gross margin after clearance costs improving in the second quarter and expected to be down 40 basis points for the first half of the year. However Laury remained confident margins could move into positive territory for the full year.

Group like-for-like sales bounced back up 1.6% in the three months to 31 July after a 4% decline in the first quarter, with UK and Ireland chains B&Q and Screwfix both increasing sales but France mixed.

B&Q returned to growth with a 3.6% LFL increase in the second quarter after a 9% fall in the first, while Screwfix improved to 5.5% growth from the 3.6% before. B&Q performed better than the 1.4% growth analysts expected, but Screwfix was a little short of the 6% predicted.

In France, while Brico Dépôt swung back into positive territory, up 2.6% from 0.8% as Laury's plan took hold to unify the group's product range across all its different chains, Castorama remained in the mire, still down 3.8% after the 8% slump in the first quarter due to weaker footfall and the impact of other transformation-related activity. Costs also climbed in France, up 3.5% in constant currency, including phasing of marketing investment in Brico Dépôt.

In the remaining international operations, LFL sales were up 1.4% from 0.5% in the first quarter, with Poland, Romania and Russia all positive but Iberia still lagging.

"We started our transformation two and a half years ago and are on track to deliver our strategic milestones for the third year in a row," said Laury.

"In Q2, I'm pleased that we grew our sales after the exceptionally harsh weather conditions in Q1. In B&Q, Screwfix and Brico Dépôt France we delivered good sales growth. However, the performance of Castorama France has been more difficult and as a result we have put additional actions in place to support our full year performance in France with the benefits expected to come through in H2."

Half-year results will be published on 19 September.

Shares in Kingfisher fell 5% to a new 52-week low of 272.5p in early trading, the lowest the shares have been since 2012.

Analysts at RBC Capital Markets said the update was "mixed", with slightly stronger than expected LFLs but a weaker gross margin than expected, with Castorama's LFL sales in France and Poland also weaker than forecast.

"We estimate circa 3% downside to consensus PBT forecasts post the release, due to the weakness of Castorama in France."

RBC, which rates Kingfisher shares 'sector perform' with a 330p price target, said on the positive side it saw France as "healthy but volatile" with a broadening housing recovery and likely benefits from an improved French e-commerce offer in 2019, while other positives are a continued solid performance by Screwfix UK and Poland.

"However, we remain relatively cautious on the outlook for UK big-ticket spend and still see relatively high execution risk with Kingfisher's unified offer strategy. We also expect Kingfisher to defend its P&L with further cost savings while it works on improving its offer."

Analyst George Salmon at Hargreaves Lansdown also felt the results were more evidence that the nation's obsession with DIY is on the wane. "At first glance, UK results represent a marked improvement. However, the strong sales figures are more a function of a scorching summer than any underlying progress. Strip out the impact of summer items like barbeques and garden furniture, and sales, which headed south over the winter, have continued to fall. That's quashed any hopes that B&Q would benefit from the recent problems at Homebase."

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