Retail News Update

Kingfisher, the struggling DIY retailer, has agreed to sell its chain of Italian stores for £440m, a move that will go some way to reducing the business’s considerable borrowings.

The company, which owns the B&Q chain in Britain, is selling the Castorama chain of 31 stores to Groupe Adeo, one of its closest rivals in mainland Europe. Kingfisher chief executive Ian Cheshire described the sale as “a good deal at this point in the economic cycle”. Shares in Kingfisher climbed almost 4% on news of the sale.

In March Kingfisher was forced to cut its dividend in order to conserve cash and set out the reduction of its £1.5bn debt pile as a priority. The Italian division had contributed about 3% of group sales.
Despite Groupe Adeo — best known for the Leroy Merlin chain of stores in France — being the market leader in Italy, the transaction is not expected to be hampered by European competition regulators. The French firm has about 4% of the market and Castorama has around 3%.

Cheshire took over the top job at Kingfisher at the beginning of the year, after previous chief executive Gerry Murphy was ousted. The new chief executive’s recovery plan, unveiled in June, is focused on cutting costs, improving margins, expanding in France and eastern Europe and closing loss-making stores in China. The home improvement market is under pressure and in June, Kingisher said that like-for-like sales at B&Q had dropped 8.1% in second quarter as sales of outdoor products plunged almost 40% because of the unseasonably cold and wet weather.

Philip Dorgan, an analyst at Panmure Gordon, said: “This looks an excellent deal … It’s early days, but we believe that the new management team has got off to a good start.”

Cheshire has set a target of keeping net debt flat for the current year. A spokesman said net debt was now likely to reduced by the year-end, but Kingfisher would nevertheless press on with tough cost efficiency measures already set out.

The sale price of £440m is 11.1 times Castorama Italy’s top-line operating profit but analysts said the price also reflects £345m of property assets.