Kingfisher not out of the water yet
Kingfisher not out of the water yet
Kingfisher finally managed to turn things around at its UK business with B&Q delivering an increase in like-for-like sales for the first time in eight quarters.
By Glynn Davis
This was undoubtedly good news for the group but does not signify that life is suddenly going to get easier for the company and the other operators plying their trade in the tough DIY market.
There is no escaping the fact that there remains great uncertainty about how interest rates will move and the possibility that further increases could kill off any nascent growth in the market.
Such an event would simply prompt a continuation of what has been a torrid time for the sector. Consider that recent research from GfK Marketing Services shows that the total DIY market declined by 1.9 per cent in value during 2006. And that was good, when compared with the previous year when the value decline was a much more significant three per cent.
Interestingly the research also revealed that whole room solutions had, in contrast, enjoyed great growth over recent years. The market for these solutions increased by nearly five per cent between 2005 and 2006 with specific categories performing particularly well - the market for living and dining room solutions increased by 13 per cent and the home offices grew by a massive 41 per cent.
These whole room solutions have been very much the domain of IKEA and it has been one of the tasks of B&Q management to squeeze more of these concepts into its stores because the market at the softer end of DIY has certainly lurched towards customers wanting the convenience of buying whole rooms rather than dealing with the hassle of choosing goods individually.
How much B&Q is able to tap into this part of the market could be crucial to its long term prospects as its UK business still accounts for a chunky 50 per cent of total group sales. To some this might be a surprise because Kingfisher has - not surprisingly - preferred to talk about its overseas businesses because that is where the real growth is emanating.
While the UK business managed a modest 1.4 per cent like-for-like increase in sales for the fourth quarter to February 3 the likes of Asia rattled in a 5.8 per cent increase, France 3.8 per cent and the rest of Europe 2.6 per cent.
But with the French business also heading for a tough time in the future (on the back of price pressures that will continue to affect margins) the overseas operations of Kingfisher start to not look quite so glossy. This is especially worrying when you consider that France accounts for around 30 per cent of total group sales, so if you take it and the UK out of the equation the remaining (exciting part) of the business accounts for only 20 per cent of total group sales.
Despite these difficulties faced by Kingfisher its share price has traded within a reasonably tight range over the past twelve months - with a peak of 275.75p and a low for the year of 217p.
And that they currently trade towards the upper end of this band, at 251p, and have held up strongly against the market correction over recent days suggests there must be many investors out there who believe the company can overcome the issues it faces in the various DIY markets around the globe.