B&Q owner Kingfisher raised hopes of a long-awaited sales revival yesterday, despite seeing trading conditions remain tough in the UK.
Like-for-like sales, which strip out the impact of changes to floor space, were much better than City expectations after a drop of 1.3 per cent in the 11 weeks to July 15. Analysts had been looking for a decline of around 4.4 per cent.
Kingfisher said the trend reflected targeted promotions and the introduction of instore "service squads".
Chief executive Gerry Murphy believed the figures showed "early signs of progress" at B&Q, which posted a fall of more than eight per cent in the previous quarter.
He added: "The UK consumer home improvement market has not yet returned to growth despite a pick-up in household consumption."
Kingfisher's international operations, including Castorama and Brico Depot in France, generated positive revenues growth to leave like-for-like sales across the group ahead by one per cent and by 8.7 per cent on a total revenues basis.
The company's rest of Europe business covers Poland, Italy, Spain, Ireland and Russia. Its Asian performance was underpinned by OBI China store acquisitions last year, Kingfisher said.
In a research note, analyst Seymour Pierce said the results were as expected, although the better performance from B&Q had been offset by a weaker than expected showing from France.
Seymour Pierce kept its estimates unchanged at £405 million pre-tax profit and 11.1 pence earnings per share (EPS) in January 2007. These go up to £445 million profit and 12.1 pence EPS in January 2008.
Credit Suisse, Kingfisher's joint house broker, repeated its 'neutral' stance and left profit expectations unchanged. It predicts pretax profit of £390 million and EPS of 10.9 pence next year and pretax profit of £465 million, EPS of 13.0 pence in 2008. "We are now reaching the point where it will become much clearer whether or not B&Q, and with it the King-fisher share price, will start to benefit from stronger demand," the broker said.
Mark Charnock of Investec Securities described the UK figures as "encouraging" but said it was too early to raise profits forecasts.
However, he added: "If recovery in gross margins at B&Q can continue, then rebuilding group profits could happen quicker and to a higher level than we and the market are anticipating."
Numis Securities said the 2.4 per cent fall was not as bad as the for per cent drop it had forecast, given expectations of a poor quarter due to the weather, the World Cup and weak consumer outlook.
"The numbers were mixed with the UK performing better than expected, France worse and Asia ahead," said Numis in a note.
The company is the largest home improvement retailer and the third largest in the world with more than 680 stores in 11 countries in Europe and Asia.
Kingfisher's pre-close trading statement comes ahead of its interim results that will be published in mid-September.
Shares closed up 8.25p at 244.75.