(Adds comment from the CEO and further detail)
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Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- U.K.-based home improvement retailer Kingfisher PLC (LSE:KGF) ( KGF.LN) posted a decline in underlying first-quarter sales and profit Wednesday as poor weather hit sales of outdoor products across Europe.
The company said that in the 13 weeks to May 3, total sales were GBP2.49 billion, up 8.6% in the same period a year earlier, with retail profit up 8.9%, at GBP96 million. However, stripping out new store openings and closures as well as currency movements sales were down 4.1%, with profit down 2.8%.
"Trading remained very tough, especially in the U.K., and the poor weather was unhelpful for sales of outdoor products," said Chief Executive
Other retailers have suffered from the U.K.'s recent cold, wet weather. Rivals such as (TSCDY) and Home Retail Group PLC (LSE:HOME) (HOME.LN) have responded by cutting prices for some outdoor furniture and garden products.
CEO Cheshire said Kingfisher has reworked its 2008 budgets to reduce its reliance on sales growth in what could be a challenging year.
Kingfisher is Europe's biggest home improvement retailer by sales with around 780 stores in nine countries across Europe and Asia.
While Kingfisher's first-quarter profit figure was ahead of expectations, Credit Suisse said that was due to a margin gain at the U.K. unit, which will reverse over the rest of the year. Sales were weak in the U.K. but gross margin was up nearly 300 basis points reflecting lower mark downs and timing benefits.
Kingfisher shares were up just 1 pence, or 0.8%, at 140 pence by 0750 GMT, outperforming a lower London market. The stock has fallen about 40% in the last 12 months.
Wet weather and a consumer spending slowdown have produced a tough few months for many U.K. retailers. The long Easter weekend is a key trading period for home improvement retailers but relies to some extent on favorable weather conditions.
Kingfisher CEO Cheshire said the company had been "planning for a pretty poor year for some time already," but had "got more cautious if anything." He said the poor weather in much of Europe underlined the importance of having a strong international businesses.
Credit Suisse said it expects the company to miss current full-year forecasts in all divisions except Poland and Castorama France - underlining the need for the company's more defensive mix of gross margin and cost containment.
Kingfisher also provided an update on the strategic review initiated by Cheshire after his appointment late last year. As well as overhauling the management structure, Cheshire set stringent new spending limits, cut sales growth targets introduced targets for improved gross margin and cost savings.
Cheshire said the U.K. represented the biggest opportunity for value creation. The group said Wednesday it is now targeting a long term operating margin from the division of 7%, up from 3.3% in the last financial year.
Kingfisher is also targeting an expansion of its French business, with space expected to increase 5% in the current fiscal year and about 30% of the annual capital investment allocated to France.
The company is also planning to open 80 stores in Eastern Europe in the next four years, more than doubling its presence there.
The company has already announced plans to invest GBP33 million on restructuring its operations in China.
The Chinese business is now entering a period of consolidation after several years of rapid growth, said Cheshire, with five stores due to close and a further three to be downsized. The company is targeting a return to annual profit in China by 2010.
Company Web site: http://www.kingfisher.com
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(END) Dow Jones Newswires 06-04-08 0415 Copyright (c) 2008 Dow Jones & Company, Inc.
