In a third-quarter trading update, home improvement retail group Kingfisher highlighted that uncertainty around the government’s Budget had hit consumer spending, with the business also facing a big hike in taxes after the Chancellor raised employer national insurance contributions (NICs).
The owner of the B&Q, Screwfix and Castorama chains said it had seen “solid” underlying trading in August and September, but that had changed to a “weak” market and consumer in the UK and France in October, impacted by uncertainty related to government budgets in both countries.
Kingfisher said the cost of the national insurance increase would come to £31m in its next financial year, while the equivalent tax rises in France would cost it £14m. “We are developing a range of additional mitigations, but at this stage, expect to offset only part of this impact,” it said.
In the three months to 31 October, like-for-like sales at B&Q dropped by 0.6% due to Budget uncertainty and wet weather, which had prevented shoppers from carrying out home maintenance. Despite the weaker market in October, the group noted that overall sales in the quarter had improved across all categories compared to the prior period, with positive like-for-like sales in its core and seasonal categories, including tools & hardware, building & joinery and outdoor. However, performance in ‘big-ticket’ categories remained “soft”.
At Screwfix, like-for-like sales rose by 1.8% as the retailer benefited from “robust” demand from trade customers.
Meanwhile, like-for-like sales in the Castorama and Brico Dépôt chains in France declined by 4.3% on a like-for-like basis due to weak consumer sentiment and adverse weather.
Thierry Garnier, Kingfisher’s Chief executive, said: “Overall trading in the third quarter was resilient. Improved performance in August and September was offset by the impact of increased consumer uncertainty in the UK and France in October, related to government budgets in both countries.
“All our banners in the UK, France and Poland performed in line or ahead of their respective markets, with particularly strong market share gains at Screwfix.
“We continued to see improved volume trends in our core categories, supported by repairs, maintenance and existing home renovation. As expected, sales of our ‘big-ticket’ categories remained soft, although we are seeing early signs of improvement.”
Giving an update on more recent trading, Kingfisher said it had seen an improvement in the exit rate from the third quarter, with group like-for-like sales down 0.5% in the three weeks to 23 November.
Having tightened its full-year profit guidance range, the group now expects to achieve an adjusted pre-tax profit of around £510m to £540m compared to a previous guidance of £510m to £550m.
Garnier concluded: “Looking towards next year, recent political and macroeconomic developments have layered incremental uncertainty onto the near-term outlook in our markets. And so we continue to focus our energy on what we can control – delivering further market share gains through our key strategic priorities, and managing our retail prices, costs and cash effectively.
“As a group, we are strongly positioned to benefit from the inflection to come within home improvement.”
NAM Implications:
- Key to keep in mind that Budget fallout has yet to impact.
- Causing even more caution from consumers.
- Despite assurances…
