ii view: DIY retailer Kingfisher fights French challenges

First-quarter trading update to 30 April

• Total revenue down 0.3% to £3.26 billion
• Same store or like-for-like sales down 0.9%

Guidance:

• Continues to expect adjusted pre-tax profit of between £490 million and £550 million for the full-year

Chief executive Thierry Garnier said:

"Trading in the first quarter has been in line with our expectations. We have seen continued resilience in our core categories, although 'big-ticket' sales have been weak reflecting the broader market as expected. 

"We remain focused on driving productivity gains and maintaining tight control of our costs and inventories. Looking forward, we confirm the guidance outlined in March for the full year.”

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ii round-up:

Kingfisher (LSE:KGF) is an international home improvement retailer which operates across eight European countries including the UK and Ireland, France, and Poland.

Just over 1,200 of its 2,000 stores are located in the UK & Ireland, with 240 in France and 102 in Poland. Its 368 Turkish stores are operated as a 50:50 joint venture. 

Employing over 75,000 people, group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş.

For a round-up of this latest trading update announced on 21 May, please click here.

ii view:

Tracing its roots back to 1982, DIY retailer Kingfisher today sells its products and services to both consumers and trade professionals. Competing against rivals like Howden Joinery Group (LSE:HWDN), Wickes Group (LSE:WIX), Dunelm Group (LSE:DNLM) and Topps Tiles (LSE:TPT), the UK and Ireland accounts for its biggest slug of profits at 74%, followed by France at 19% and other international markets including Poland the balance of 7%. 

Group strategic focus includes growing e-commerce sales, concentrating on smaller store formats and using artificial intelligence (AI) to identify selling opportunities. More specifically, moves to improve its challenged French business include simplifying its management structure, converting underperforming Castorama stores into the more profitable Brico Dépôt format and potentially rolling out 600 Screwfix stores compared with 23 currently. 

For investors, the tough economic backdrop including high borrowing costs for customers plus political uncertainty given elections in the UK and France, cannot be overlooked. The weather remains a key influence on sales, group costs such as wages have increased, while some other markets remain small, with Romania generating losses in its last financial year. 

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More favourably, e-commerce sales continue to grow, rising 12.7% during this latest quarter and now account for 18.8% of total sales versus 16.9% in early 2023. New ScrewFix stores aimed at trade buyers are being opened both physically and online. Costs remain a focus for management who target additional savings of around £120 million this financial year, while specific actions to improve its key French business are ongoing. 

Housing markets remain pressured and management expects an 8% decline in annual profit. However, investors have been happy to back Kingfisher this year, attracted by continued business improvement and a forecast dividend yield above 4.5%.

Positives: 

• Diversity of geographical locations and brand names
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Hold