B&Q owner Kingfisher's new boss wastes no time in getting bad news out there (2024)

If Thierry Garnier, the new chief executive of Kingfisher, was under any illusions about the scale of the task facing him, he will certainly have been disabused of them now.

Europe's largest do-it-yourself retailer, which owns B&Q and Screwfix in the UK and the Castorama and Brico Depot chains in France, today reported another drop in sales which Mr Garnier himself described as "disappointing".

During the three months to the end of October, on a like-for-like basis (which strips out the effect of new store openings, refurbishments and store closures), Kingfisher's group sales were down 3.7% on the same period last year.

Right across the company, sales were down on a like-for-like basis almost everywhere, with the Russian operations particularly badly hit.

As befits any good incoming CEO, Mr Garnier, who succeeded Veronique Laury eight weeks ago, has wasted no time in getting the bad news out there, something known in City jargon as 'kitchen-sinking' - as in everything that can be thrown in to make the numbers look bad, including the kitchen sink, is.

It gives the new man or woman a low base from which to build.

No profits were disclosed in these figures, because it was a third quarter trading update, but investors will have been left in no doubt that things are, and will remain, tough.

As Mr Garnier himself put it today: "It is clear that there is much to do to improve our performance.

"My early assessment is that we have not found the right balance between getting the benefits of group scale and staying close to local markets.

"We are suffering from organisational complexity, and we are trying to do too much at once with multiple large-scale initiatives running in parallel.

"Altogether, this has brought disruption to sales and has distracted the business from focusing on customers."

He need not have added, but did anyway, that the company also faced "softer market conditions in our main markets".

The problem that long-suffering shareholders will have with his assessment is that it was one reached by his predecessor.

Ms Laury, a former showjumper who took the helm in February 2015, quickly identified that there were huge productivity gains to be won by simplifying the business and selling broadly the same products on a group-wide basis.

Specifically, she pointed out that across Kingfisher, there were 393,000 so-called Stock Keeping Units (SKUs), in other words, there were 393,000 distinct items for sale.

That included 12,800 different hand tools, more than 4,700 different types of light bulb, 1,000 different types of gloves and nearly 2,000 different types of paintbrush or roller.

Ms Laury noted at the time that the top-selling 10% of SKUs accounted for 68% of Kingfisher's total sales, while the bottom-selling 50% accounted for just 2%.

Accordingly, in a programme she called One Kingfisher, Ms Laury sought to strip out the poor-selling items to focus on best-sellers.

The logic was that, by selling even more of these across the group, Kingfisher would be able to extract better terms from suppliers.

It is an approach similar to the one that has served German hard discounters Aldi and Lidl well in the grocery market.

Her problem was trying to impose that kind of order on a business that sprawls from Ireland in the west to Russia in the east via Spain, Portugal, Romania, Poland and the UK in between - and which trades under a number of different formats.

Mr Laury's diagnosis was correct - but she sought to roll out her strategy while, at the same time, closing unprofitable stores, trying to build on the group's online presence and rolling out a single IT system across the group.

Ultimately, the task defeated her.

Mr Garnier, who has spent the last 20 years at French hypermarket giant Carrefour, will benefit from some of that work.

The big question investors have is the extent to which he will be allowed to go further and be more radical.

In September, when Kingfisher's half year results were published, company chairman Andy Cosslett made clear that the board had been supportive of Ms Laury's One Kingfisher strategy and that the only problem had been in her execution of it.

That implied that Mr Garnier had been brought in to implement One Kingfisher more effectively.

Today though, the new man indicated some of the remedial work could be put on hold, saying: "Our priority is to fix our operational issues - particularly in IT and supply chain in France - and refocus our efforts.

"This includes stopping or pausing a number of initiatives to concentrate on stabilising performance and trading."

In the meantime, a consumer slowdown across Europe is also adding to Kingfisher's difficulties, even though - as it approaches the first anniversary of the 'gilet jaunes' protests in its key French markets - year-on-year comparisons are about to get easier.

As Kate Calvert, retail analyst at stockbroker Investec, told clients today: "It is hard to find a positive in Kingfisher's Q3 update."

James Grzinic and Frederick Wild, the retail analysts at stockbroker Jefferies, added: "Commentary from Mr Garnier in his first results outlook statement suggests a fuller picture of how to stabilise performance and trading will be presented with the full year results in March.

"It looks like this will major on taking complexity out of the business, especially within the French IT and supply chain.

Which seems to be a sensible course of action."

In theory, Kingfisher has a lot going for it. It is the world's fourth largest do-it-yourself and home improvements retailer and the largest in Europe, where the housing stock tends to be older, providing ample opportunities to sell to hundreds of millions of people looking to do up their properties.

In Europe, in addition, a growing trend for urbanisation means more people living in flats and apartments - and, accordingly, looking to make the most of what might often be limited space.

All of that, again, should play to Kingfisher's strengths.

The company owns some well-known and recognised brands and is profitable.

In addition, in Screwfix, it boasts one of UK retailing's biggest success stories of the last decade or so.

Mr Garnier is clearly backing himself. Earlier this month, he splashed out £128,000 on shares in Kingfisher.

He is currently showing a loss on that investment, since he bought at an average price of 212.7p, while this evening the shares were trading down 7% at 194p each.

At the moment, though, with the shares trading at a valuation of barely 10 times this year's expected earnings, investors are clearly sceptical of a quick fix.