Interactive Investor

ii view: Kingfisher suffers overseas but chiefs optimistic

Shares in this European DIY retailer are in positive territory this year following a weak 2022. We assess prospects.

15th December 2023 15:39

Keith Bowman from interactive investor

Third-quarter trading update to 31 October

  • Total revenue down 2.1% to £3.2 billion
  • UK & Ireland like-for-like sales up 1.1%
  • French currency adjusted like-for-like sales down 8.6%
  • Other overseas currency adjusted like-for-like sales down 7.6%

Guidance:

  • Now expects full-year profit of £560 million, down from a previous estimate of £590 million

Chief executive Thierry Garnier said:

“As we move into 2024, we are focused on what is in our control. A continued focus on growing market share in the UK, France and Poland with delivery of our strategic growth initiatives. On the medium-to-longer term outlook, we remain very positive for home improvement growth in our markets, and our ability to grow ahead of our markets.”

ii round-up:

Kingfisher (LSE:KGF) is an international home improvement retailer which operates from more than 1,500 stores as well as online websites. 

It trades from eight European countries including the UK and Ireland, France and Poland. Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş. 

For a round-up of this latest trading update announced on 22 November, please click here.

ii view:

Kingfisher traces its roots back to 1982 and the acquisition of FW Woolworth by Paternoster. Today, and with a stock market value in the region of £4.5 billion, it sells home improvement products and services to both consumers and trade professionals. The UK and Ireland account for its biggest slug of sales at just under half, followed by France at just over a third, Poland at a tenth and other European nations the balance. Competitors include Wickes Group (LSE:WIX), Howden Joinery Group (LSE:HWDN), Dunelm Group (LSE:DNLM), and Topps Tiles (LSE:TPT).    

Group strategy includes expanding its trade focused sales via growth at its Screwfix and Tradepoint outlets, growing its e-commerce related sales, enhancing its customer data and using artificial intelligence (AI) to sift out selling opportunities, and extending its range of generally higher profit margin Own Exclusive Brands (OEB).

For investors, the unpredictable weather and its impact on French sales over this latest quarter cannot be ignored. The tough economic backdrop including heightened borrowing costs and strained housing markets is ongoing. Costs generally for businesses are still elevated, while its sizeable overseas revenues at more than half brings potential currency headwinds.

More favourably, sales for its biggest region, the UK and Ireland, rose marginally over Q3, e-commerce sales climbed 7.4%, and new ScrewFix stores aimed at trade buyers are being opened both physically and online across France and other European countries. Management confidence in cashflows also underwrites a current £300 million share buyback programme.

While profit expectations continue to decline, management remains confident about the medium term. An estimated dividend yield in the region of 5.1% may also be enough to buy the patience of existing shareholders and attract new ones seeking a play on economic recovery some time next year.  

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

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