ii view: DIY retailer Kingfisher's 4.5% yield pays investors to sit tight

First-quarter trading update to 30 April

• Total revenues up 1.6% to £3.31 billion
• UK and Irish B&Q sales up 7.4% to £1.06 billion 
• UK and Irish Screwfix sales up 4.1% to £675 million
• French sales down 4.9% to £976 million
• Polish sales down 0.4% to £443 million

Guidance:

• Continues to expect full year adjusted pre-tax profit for the 2025 year ahead of between £480 million and £540 million, potentially down from 2024’s £528 million.

Chief executive Thierry Garnier said:

"We have made a good start to the year with underlying sales growth of 3.1%, market share gains in all key regions and further progress in our strategic priorities.

"It is still early in the year and consumer sentiment remains mixed across our markets. We are focused on executing our strategic growth priorities, maintaining discipline on margin and costs, and driving shareholder returns. We are confident in delivering our full year guidance."

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ii round-up:

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

More than 1,260 stores are in the UK & Ireland, with around 220 in France and a further 107 in Poland. The company’s 262 Turkish stores are operated as a 50:50 joint venture. 

Kingfisher brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş in Turkey.

For a round-up of this latest trading update announced on 28 May, please click here.

ii view:

Tracing its history back to 1982, the FTSE 100 company today competes against such rivals as Howden Joinery Group (LSE:HWDN), Wickes Group (LSE:WIX), Dunelm Group (LSE:DNLM) and Topps Tiles (LSE:TPT). Selling to both consumers and trade professionals, the UK and Ireland generated most sales during its last financial year at 50%. That was followed by France at 30%, Poland 14%, and other countries the balance of 6%. 

Kingfisher breaks its sales into the categories of Repair, Maintenance and Renovation activity on existing homes, accounting for 67% of 2024 revenues. ‘Seasonal’ sales accounted for a further 18% of 2024 revenues, with big-ticket items the balance of 15%. Management strategic focuses include developing its trade business, growing e-commerce related sales, building a data-led customer experience and rolling out compact store formats. 

For investors, around a third of sales come from seasonal and big-ticket items including such products as new kitchens and garden furniture – providing exposure to both cyclical housing markets and unpredictable weather. Increased taxes in both the UK and France are estimated by management to have added £145 million to costs. Sales in both France and Poland fell during this latest quarter, while an estimated Price Earnings (PE) ratio above the three-and ten-year averages may suggest the shares are still not obviously cheap. 

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More favourably, sales for its biggest UK and Ireland business are growing. A store restructuring and modernisation programme for its French Castorama business is ongoing. Total e-commerce sales rose 9.3% year-over-year and up from growth of 8.3% during 2024, while group ambition includes plans to significantly expand Screxfix outlets in France. 

For now, sales not firing on all cylinders and pressured profits generate caution. That said, management initiatives continue with an estimated future dividend yield of around 4.5% arguably paying investors to sit tight and await a potential recovery. 

Positives: 

• Diversity of geographical locations and brand names
• 2024 growth in market share for all key regions

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Hold