Mar 25, 2010
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Retailers confident of coping in 2010

Mar 25, 2010

By Mark Potter and James Davey

LONDON (Reuters) - Retailers Kingfisher (KGF.L) and Next (NXT.L) raised hopes they can lift profits this year by cutting costs and keener purchasing even if Britain's consumers face a tough time as the government moves to cut borrowing.

Kingfisher, Europe's biggest home improvements retailer, beat forecasts with a 49 percent rise in full-year profit and demonstrated its confidence on Thursday 25 March by raising its dividend 3.3 percent, the first increase in five years, and almost doubling capital spending for the year ahead.

Next, Britain's second-largest fashion chain, also topped forecasts with an 18 percent rise in full-year profit and hiked its dividend 20 percent.

While the British economy moves out of recession, many retailers fear the outlook for consumer spending could worsen amid uncertainty over the prospect of higher taxes and public sector job cuts to reduce the government's deficit after an election expected on May 6.

"In whichever way a future government balances its books, the results will be uncomfortable for the consumer," Next chief executive Simon Wolfson said.

Official data on Thursday 25 March showed retail sales volumes jumped a bigger than expected 2.1 percent month-on-month in February, helped by the figure for a weather-hit January being revised to a fall of 3.0 percent from 1.8 percent.

However, on Tuesday 23 March an industry survey showed sales growth slowing more than expected in March, while Britain's largest floor coverings retailer Carpetright (CATVU.L) issued a profit warning.

Greeting cards company Clinton Cards (CLCA.L) added to hopes retailers can cope with tough trading conditions by raising full-year profit expectations thanks, in part, to tight cost management.

Also, designer brand Ted Baker (TBK.L) posted a modest 3.6 percent rise in full-year underlying profit, menswear retailer Moss Bros (MOSB.L) reported a narrower pretax loss and said it would not pay a dividend, and Anglo-American jeweller Signet Jewellers (SIG.N) beat forecasts for fourth quarter earnings.

"You can write a list a list as long as your arm as to why it is going to be terrible. But it is never that bad because life goes on and ... whichever party gets in the anticipation is that there is going to be a small level of economic growth this year," Ted Baker finance director Lindsay Page told Reuters.

At 12:40 a.m., Next shares were up 5.9 percent at 2,192 pence, the biggest rise on Britain's benchmark FTSE-100 index .FTSE. Kingfisher shares were down 2.7 percent at 222.3 pence as some analysts expressed disappointment the increase in its dividend, given low debt levels, was not higher.


Next, second only in clothing to Marks & Spencer (MKS.L), made a pretax profit of 505 million pounds in the year to January 31, beating its own guidance of 490-500 million.

Wolfson told Reuters the company should be able to grow profit by 5-7 percent this financial year as long as sales were flat, thanks to tight cost controls, and said the company would do more earnings-enhancing share buybacks.

"We continue to believe that Next could buy back an additional 6-7 percent of equity as well as investing in Next Home roll-out, Lipsy roll-out and growth in Europe," said Investec Securities analyst Katharine Wynne.

Kingfisher, which runs market leading chain B&Q in Britain and Castorama in France, also cited cost cutting and supply chain improvements as the driving force behind profit growth.

It made profit before tax and one-off items of 547 million pounds for the year ended January.

"Looking ahead, we remain cautious on the outlook for consumer demand," chief executive Ian Cheshire said, adding he was confident Kingfisher would cope, helped by moves to boost profit margins, like more joint purchasing by its chains and buying more goods from cheap manufacturing centres like Asia.

The group plans to directly source $1 billion of goods in 2010-11, up from around $800 million in 2009-10.

It will also almost double capital spending to 400 million pounds, rolling out its TradePoint service in B&Q stores and opening more stores in France, Poland, Turkey and Russia.

(Additional reporting by Neil Maidment in London, and Aditi Samajpati and Juhi Arora in Bangalore; Editing by Dan Lalor)

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