ii view: Kingfisher flirting with FTSE 100 danger zone

Sales fall in a sea of management initiatives. Will the new CEO change strategy again?

Third-quarter trading update to 31 October 2019

• Revenue down 3.2% to £2.95 billion on a constant currency basis
• Like-for-like (LFL) sales down 3.7%

Chief executive Thierry Garnier said:

"In my first eight weeks at Kingfisher I have immersed myself in our operations, listened to colleagues, visited stores and met with our customers and suppliers. I am proud to be leading a Group with strong assets, excellent market positions, differentiated business models and strong brands. I have also been encouraged by the commitment of our colleagues, and by proof of product innovation.

"However, there is much to do to improve our performance. Kingfisher's trading during Q3 was disappointing. My early assessment is that we have not found the right balance between getting the benefits of Group scale and staying close to local markets. We are suffering from organisational complexity, and we are trying to do too much at once with multiple large-scale initiatives running in parallel. Altogether, this has brought disruption to sales and has distracted the business from focusing on customers. In addition, we faced softer market conditions in our main markets during the period.

"I am pleased to have strengthened my executive team. As a team, our priority is to fix our operational issues - particularly in IT and supply chain in France - and refocus our efforts. This includes stopping or pausing a number of initiatives to concentrate on stabilising performance and trading. The effect of these changes will not be immediate.

"In parallel, we are building a longer-term plan to refocus on our customers, simplify our model, embrace digital and return our business to growth. I look forward to providing an update on the business and our strategic priorities in March, within our full year results."

ii round-up:

DIY retailer Kingfisher (LSE:KGF) operators over 1,300 stores across 10 countries, although with the majority in the UK and France. It intends to exit Russia and Iberia going forward. 

Employing over 75,000 people, its brands include B&Q, Screwfix, Castorama, Brico Dépôt, Koçtaş in Turkey and its latest offering GoodHome. 

In 2018, the UK accounted for just over a half of group retail profit and France one-third. 

For a round-up of this third-quarter trading update, please click here. 

ii view:

The reign of the departing chief executive has been dominated by implementation and execution of a transformation plan, targeting goals including unifying the product range and computer systems, increasing operational efficiency and driving digital capability. The level of success achieved is questionable. 

The new chief executive, a veteran of French retailer Carrefour (EURONEXT:CA), appears to be questioning the degree of change and an arguable loss of focus on the customer. Further changes of strategy could now be outlined at its next investor update. 

For investors, patience may be wearing thin. An 18% fall in the share price over the last year compared to a 4% rise in the FTSE 350 General Retailers sector continues to tell a story. A historic dividend yield of over 5% and covered twice by earnings offers some compensation, but the new chief executive could now see Kingfisher going the way of Marks & Spencer (LSE:MKS) - out of the FTSE 100 index. 

Positives: 

• Screwfix same store sales rose by 3.7% in Q3
• First-half digital sales rose 18%, accounting for 7% of total sales, up from 3% in FY 2015/16
• New CEO may galvanise company and provide renewed clarity of purpose

Negatives:

• Castorama and Brico Dépôt same store sales fell by 6% and 6.1% respectively
• First-half retail profit in France fell by 12.7%
• Outlook comments highlight ongoing softer UK market backdrop and range disruption

The average rating of stock market analysts:

Sell