ii view: Kingfisher self-help offsetting economic headwinds

First-half results to 31 July

• Revenues up 1.6% to £6.86 billion
• Adjusted pre-tax profit up 9.9% to £404 million
• Interim dividend unchanged at 3.8p per share
• Net debt of £1.93 billion, up from a previous £1.88 billion

Guidance:

• Now expects full-year adjusted pre-tax profit of £595-635 million, up from a previous £565-625 million
• Now expects full-year free cash flow of £480-520 million, up from a previous £450-510 million

Chief executive Thierry Garnier said:

"We delivered a solid H1 performance, growing sales, gross margin and profits through market share gains and continued momentum across trade, e-commerce, marketplace and group sourcing.

“We are building a stronger, more resilient Kingfisher, with our strategic priorities creating new growth opportunities and strong financial discipline supporting performance across the business.”

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ii round-up:

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

The retailer operates more than 1,800 stores when including the company’s 50:50 joint venture in Turkey. Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş in Turkey.

For a round-up of these latest results announced on 22 September, please click here.

ii view:

Opening the first UK B&Q store in 1969, Kingfisher today employs around 70,000 people. Group products are broken down into three categories. Repair, Maintenance and Renovation, or core sales, accounted for 63% of revenues during this latest period. Big-Ticket items such as kitchens and bathrooms came in at 14%, with Seasonal sales like garden furniture making up the balance of 23%.

Geographically, the UK and Ireland chipped in most over this half at 52%. That was followed by France at 30%, Poland 14%, and other countries the balance of 4%. Group rivals include Howden Joinery Group (LSE:HWDN), Howden Joinery Group (LSE:HWDN) and even Dunelm Group (LSE:DNLM) and B&M European Value Retail (LSE:BME).

For investors, elevated energy prices as a result of the Iran conflict and high inflation now affect central bank interest rate policy and housing markets. High debt and concerns about government spending cuts created the backdrop for a 2.5% fall in French same store sales during the second quarter. An estimated price/earnings (PE) ratio in line with the three-year average may suggest the shares are not necessarily cheap, while big ticket and seasonal sales offer exposure to cyclical housing markets and increasingly unpredictable weather.

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To the upside, management self-help initiatives including a focus on growing trade sales and increasing supply chain efficiencies, have aided a 0.7% improvement in the gross profit margin during this latest period. Operating costs for its in-focus French business fell 1.3%, aided by a flexing of staff levels. Both product and geographical diversity exist, while the more than one billion annual visits across Kingfisher’s digital channels give opportunity for AI enhancements such as product recommendations.

On balance, economic headwinds and stagnant UK and French housing markets offer room for caution. That said, momentum driven by management initiatives and a dividend yield of close to 4% give grounds for continued interest.  

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