ii view: what should you make of Kingfisher's share price?

Online sales boomed during the pandemic, but comparatives are getting tougher. Buy, sell or hold? 

Third-quarter trading update to 31 October

• Like-for-like (LFL) sales down 2.4% year-over-year
• LFL sales up 15% on a two-year basis
• Four-quarter LFL sales to 13 November up 0.4 %

Guidance:

• Now expects second half sales and adjusted profit at the upper end of its previous forecast

Chief executive Thierry Garnier said:

“Demand remains supported by what we believe are enduring new industry trends, including more working from home. We continue to grow our market share, driven by strong execution of our new strategy. We are pushing forward with investments in key areas of the business to drive long-term growth, including further enhancements to our e-commerce proposition and Screwfix's launch in France.

“Overall, with strong execution and supportive new long-term trends for our industry, we remain confident of continued outperformance of our markets."

ii round-up:

Home improvement retailer Kingfisher (LSE:KGF) today reported a steady if not blowout third-quarter trading update.

Quarterly like-for-like sales fell 2.4% year-over-year, beating analyst forecasts for a decline of nearer 3%, and are 15% up on a two-year pre-pandemic basis. Market share gains continue to be made, with management pushing its full-year sales and adjusted profit forecasts to the upper end of its prior guidance. Some analysts had been looking for an increase. 

Kingfisher shares fell by more than 4% in UK trading, having more than doubled since pandemic lows in March 2020. Shares for both Travis Perkins (LSE:TPK) and Howden Joinery (LSE:HWDN) have also doubled in that time. 

The owner of brands including B&Q and Screwfix now expects second-half like-for-like sales to be towards the higher end of its -7% to -3% previous estimate. Annual adjusted pre-tax profit is expected to be near the upper end of its £910 million to £950 million previous estimate.

Trading momentum had continued into the fourth quarter, with like-for-like sales up 0.4% for the period up to the 13 November compared to last year. E-commerce sales grew 133% on a two-year pre-pandemic basis.  

Full-year results are scheduled for 22 March.

ii view:

Kingfisher is a multiformat home improvement retailer with around 1,400 outlets. It trades from eight European countries including the UK and Ireland, France and Poland and employs over 80,000 people. Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş. 

Under its former Carrefour chief executive, strategic priorities currently include a focus on last-mile delivery for its ecommerce offering; developing and rolling-out its Own Exclusive Brands (OEB); reducing costs; and testing and launching new compact stores and partnership models. 

For investors, vaccinations and increased travel opportunities going into 2022 could see DIY spending sacrificed in favour of holiday plans. Broader product supply challenges and rising raw material costs are worth remembering, with around 25% of its cost of goods sold coming from Asia. 

On the upside, the sea change in ecommerce sales cannot be overlooked. Brand and geographical diversity offer strengths, while the pending need for greener homes should provide longer-term opportunity. An estimated analyst future dividend yield of over 3% is also not to be forgotten. In all, and with the shares trading on an estimated price/earnings (PE) ratio close to their three-year average, the shares arguably look to be up with events. 

Positives: 

• Diversity of geographical locations and brand names
• Buoyant housing market

Negatives:

• Total Q3 sales down 6.3% year-over-year
• Management mindful of continued Covid uncertainty

The average rating of stock market analysts:

Hold