Kingfisher owner B&Q is impacted by sluggish French sales

Kingfisher’s hopes of a recovery have once again been dashed after the DIY retailer saw its profits fall due to sluggish sales in France.

B&Q, Screwfix and B&Q’s owner said it would examine the future of Castorama after its like-forlike sales dropped by 5.9 percent last year.

Thierry Thierry Garnier is the Kingfisher Chief Executive, who has been trying to turn the group around since 2019. He said it was “outlining a plan to simplify French organisation, and to improve Castorama France’s performance and profitability, including restructuring and modernising its store network”. The options include subletting the space to other retailers or converting to Brico Depot.

Castorama France, a DIY retailer and home improvement retailer, has 9,878 staff and 95 stores. It also operates a few compact stores named Casto. The French business has seen sales decline more than expected in the last year.

Garnier, who is 58 years old, has ruled out plans to sell Castorama, the second-largest DIY store fascia (after Brico Depot) in France. He said, “It’s a famous brand with a great brand recognition.” “We feel that the performance of certain stores is not sufficient.” Casto is a company we are confident about, but we think we need a plan for what we will launch in 2019.

He refused to say how many jobs could be affected, but he said “when times get tough, it’s up to us to adjust headcount according to demand”. He stated that the company did not plan to reduce staff numbers in order to achieve a larger cost-saving goal.

Kingfisher operates more than 2,000 stores in eight countries. Britain and France are its two largest markets. Koctas is also part of its stable in Turkey.

During the pandemic , FTSE retailer saw a spike in DIY product demand as consumers locked inside their homes invested time and money. The retailer’s profits topped PS1 billion during the year ending March 2022. Its shares also reached a high of over 370p. Since then, the people have cut back on their spending due to rising inflation and cost of living.

The headline profit for the Kingfisher Group fell by 25% to £568 millions in the period ending January. This compares to £758millions the previous year. Statutory profits fell by 22 percent to £475 millions, from £611 in the previous year. Kingfisher warned of two profits in the past year. The company blamed a decline in consumer spending, and a tougher trade environment in France and Poland.

Like-for-like UK and Ireland sales rose by 0.8%, a largely flat performance that the company said reflected a stagnant housing market. In the UK and Ireland like-for-likes sales increased by 0.8%, reflecting a flat performance attributed to a stagnant property market and adverse weather. In France, the sales fell by 5.9%.

Sales in Poland dropped by 9.5%, as a result of a “very strong” comparative and weakened trading environment. Garnier pointed out that Poland’s inflation rate was 18.2 percent in February 2023. This “explains the complex nature of the market”. He said that he had no plans to review the Polish Division, and added: “Poland will be a country in which we invest more money and open more shops.” We are very confident in its future.

The FTSE 100 Group forecast adjusted pre-tax profits of between £490 and £550 millions for the year ahead. This is below the average City analyst’s forecast of £560 millions.

Garnier predicted flat sales for Britain in 2024, and said that he is “cautious” about market growth. “Against this background, we will stay agile and focus on what’s within our control. We will leverage our strategy to deliver growth in market share, drive productivity gains, and manage our costs and our cash effectively.

Since joining the company, the Frenchman focused on delivering a “Powered by Kingfisher”, a new strategy intended to prioritize online growth and personal own brands. The business plan, he said, remained “broadly the same”, but now there is a greater focus on data and AI.

The company is planning to reduce costs by £120 million across all of its businesses in this year. This could include reviewing the lease terms and “reorganising its supply chain”. Kingfisher has said that it plans to open 40 new Screwfix stores in Britain and Ireland in the current financial year, and 15 in France. Garnier refused to comment on reports that the company was considering a bid for Homebase Ireland’s eight stores.

Analysts at Investec believe Kingfisher is “well-positioned” to benefit from operating leverage when demand returns. We think the market is nearing the end of its downgrade cycle. However, we acknowledge that shares will not outperform until investors are willing to look past the weak consumer environment.

In afternoon trading, Kingfisher’s shares rose by 3 1/4p or 1.4% to 237p.

Castorama France’s problems will require more than DIY (Isabella Fish). The DIY and home improvement retailer’s recent problems can be attributed to a lack of consumer confidence. However, they had already been plagued by problems before the pandemic.

Kingfisher also owns B&Q, Screwfix and Castorama. It bought Castorama after winning a takeover battle against its former French bosses in 2002. The retailer employs 9,878 people and has about 100 stores across the country.

Thierry Garnier has acknowledged that he inherited a company in a “really bad position” in France. He claimed that there were shortages, wrong prices, lack of promotions, disorganization, and a demotivated team in the stores. This had led to years of slow sales.

RBC Capital Markets warned that the Castorama chain had underperformed the French market in 2019. This was due to its online and product offerings. The broker also pointed out structural issues, saying that although Castorama was more concentrated in high-population areas than Leroy Merlin (its main competitor), the latter had a greater focus on low-income neighborhoods, which gave them a better exposure to fast-growing populations.

Garnier’s “Powered by Kingfisher” strategy has included a plan to address these problems. However, any improvements would likely have been masked by the overall weaker retail trade in France. He claimed that he has been testing new concepts for the last year. He said that he had tested different concepts over the past year.

As part of the new strategy, Castorama France will review the future of one third of its Castorama store as a way to “simplify French organisation” and “significantly improve performance and profitability”. This includes restructuring and modernizing the store network. The options include subletting the space to other retailers or converting them to Brico Depot.

Garnier stated that “we believe it will significantly improve the profitability of Castorama”.