B&Q warning shock for High St

DIY group Kingfisher, which owns the B&Q chain, sent a shiver through the retail sector this morning with a shock profits warning. The company, which is Europe's top home improvement stores group, said that its first-quarter profit was expected to fall 15% because of weak consumer confidence.

Kingfisher also said like-for-like sales were expected to decline around 6% in the quarter to 30 April, while total sales for the period would be broadly flat compared with the previous year. Shares in the company were down 17p at 255p - a drop of more than 6%.

Chief executive Gerry Murphy said trading has been tough this year, with consumer spending hit by higher taxes, debt costs and inflation, as well as poor weather. The poor state of the housing market is another possible factor particular to DIY retailing.

But Nigel Cope, head of communications at Kingfisher, denied that the property slowdown is a major factor: 'I think the link between DIY sales and swings in the housing market is exaggerated.'

However, the perception of reduced wealth caused by the property lull, together with higher mortgage costs, could well be a factor. 'People who are copming out of fixed mortgages on to higher variable rates especially could be feeling the pinch,' Cope told This is Money.

'We must emphasis however that we don't feel we are underperforming the sector,' he added.

Richard Ratner at broker Seymour Pierce described the update as 'pretty poor' and cut his full-year pre-tax profits forecast from £735m to £675m. 'It just goes to show you how weak the retail sector is in the UK,' he said. 'Trading conditions look set to continues to disappoint.'

The company warned in March that cold weather across northern Europe was keeping people away from its stores and that it had made a weak start to the year.

That came in the wake of a surprise fall in underlying sales at the group's core B&Q chain in the final quarter of 2004, as the consumer spending slowdown took its toll

Kingfisher has expanded rapidly overseas in recent years although its UK business still produces 56% of profits. B&Q is facing growing competition from rivals such as Homebase, owned by Argos group GUS, and from smaller rivals such as Topps Tiles in flooring.

With operations including Castorama and Brico Depot in France, and a 21% stake in the German DIY retailer Hornbach, Kingfisher is Europe's largest home improvement retailer and the third-largest in the world, with 600 stores in nine countries across Asia and Europe. Its total non-UK sales last year surged by a third, from £593m to £787m.

Kingfisher today also announced a deal to buy OBI Asia Holding in China, the second-largest western home improvement retailer in the country, for an undisclosed sum.