Kingfisher says election clouds recovery hopes

"As we look to next year, we have to recognise, particularly around the UK, a level of uncertainty," Chief Executive Ian Cheshire told reporters, after the company beat forecasts with a 28 percent rise in third-quarter profit and a reduction in debt.

"This could go either way next year, either taxes and unemployment will hit, or potentially post an election budget there may be an end to uncertainty and people can start to focus on the positives," he said.

Kingfisher, which runs market leaders B&Q in Britain and Castorama in France, would focus on the self-help initiatives of cutting costs, revamping stores and improving its supply chain rather than count on a rebound in markets.

"We're well positioned if that happens but not relying on it," said Cheshire.

Despite its caution, Kingfisher's performance added to evidence that consumer spending is picking up after a brutal downturn in late 2008 and early 2009.

British retail bellwether John Lewis has forecast strong Christmas sales and posted department store sales up 12 percent in the four days to December 2, while last week DSG International , Europe's second-biggest electrical goods retailer, reported a return to underlying sales growth in recent weeks.

But the evidence is far from conclusive, with a survey on Tuesday confirming an earlier rebound in house prices had slowed.

The recession has meant many consumers have had little prospect of moving home and have instead focussed on making their homes more pleasant to live in. Kingfisher, with over 820 stores in eight countries, has tapped into this but it does better when housing transactions are strong.

The firm made retail profit of 227 million pounds in the 13 weeks to October 31, ahead of analyst forecasts in a 204-225 million pound range, according to a Reuters poll, and up from 176 million a year ago.

Kingfisher also cut its net debt to 200 million pounds and forecast year-end net debt of 300 million pounds, much better than previous guidance.

"The progress from a net debt position of 1.6 billion pounds at January 08, to just 300 million pounds by January 10 is nothing short of miraculous," said Andrew Wade, analyst at Numis, who raised his year to end-January 2010 pretax profit forecast to 541 million pounds from 525 million.

Some analysts have suggested that Kingfisher's improved debt position will lead it to resume dividend payment increases, but Cheshire said no decision would be made until March.

"Although the net debt is well down there's still more to do, which I think means we're not in any hurry to start handing more money out," he said.

Kingfisher shares have more than doubled over the last year on recovery hopes, outperforming the DJ Stoxx European retail index <.SXRP> by 43 percent.

The stock was up 0.1 percent at 236.5 pence at 12:20 p.m., valuing the business at about 5.6 billion pounds.

Kingfisher's sales increased 5.6 percent to 2.69 billion pounds, with sales at stores open over a year up 0.8 percent.

Like-for-like sales increased 5.7 percent at B&Q, but fell 0.8 percent at Castorama. They were up 1 percent in Poland and were positive in China for the first time in two years.

(Additional reporting by Mark Potter; Editing by Dan Lalor and Jon Loades-Carter)