Kingfisher receives Q1 weather boost

Caution prevails at Kingfisher (LSE:KGF) despite an opening quarter which saw the group exceeding estimates.

Revenues of £3.31 billion in the three months ended 30 April were up by 1.6% on a reported basis, and ahead of the £3.21 billion which had been expected. However, Kingfisher noted that the favourable weather which led to a spike in seasonal products may also have resulted in some customer purchases being brough forward, implying that numbers in the second quarter could marginally suffer.

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The group has more recently managed to shake off most of the disappointment from its full-year results, when it guided for adjusted pre-tax profit this year in a range of £480 million to £540 million, compared to last year’s £528 million. That was well below market estimates even at the upper end of the range. Kingfisher has nonetheless reiterated that guidance today, alongside an estimate of between £420 million and £480 million for free cash flow en route to its 2026/2027 target of £500 million.

Underneath the bonnet, Kingfisher continues to focus on the repairs which are somewhat overdue. In particular, the underperforming French operation which accounts for 29% of group sales saw a further drop of 4.9% in revenues, comprising a fall of 5.1% at Castorama and 4.6% at Brico Depot. The long-suffering Castorama unit, where pressure has been in evidence for some time, remains in focus as the group simplifies and modernises the store estate, although this restructure is a slow burner. 

In addition, the retailer is also facing the pressures which have blighted the sector, not least of which are the higher wage rates resulting from Budget measures in both the UK and France. Kingfisher estimates that some £145 million of costs will have been added, which it hopes to offset with further cost savings and gross margin improvements. 

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Even so, there are equally some pleasing signs of progress, especially within the UK and Ireland market and despite the mixed consumer sentiment which the group has identified. The UK and Ireland represents 52% of group revenues, with B&Q and Screwfix contributing 32% and 20% respectively.

B&Q benefited from a 7.4% rise in sales, largely driven by a spike in big ticket items which themselves account for 15% of the group total. Some support had more recently been derived from repairs, maintenance and existing home renovation activity, lines which form part of core sales which represent 64% of overall revenues. 

Meanwhile Screwfix, long since Kingfisher’s jewel in the crown, continues to hold its own with the format in the early stages of being extended abroad with a longer-term ambition of 600 stores in France compared to the current 30. In the meantime, sales growth of 4.1% comes against ever-stronger comparatives, while there was also a 9.3% rise in ecommerce sales overall.

More broadly, the jury remains out on Kingfisher’s current growth trajectory, but there are some signs of progress. The group will see little to no impact from the current US tariff trauma since it has no operations there and its otherwise geographically diverse business offers some support.

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Meanwhile, a dividend yield of 4.2%, alongside an ongoing £300 million share buyback programme, are price supportive. As such, the shares have risen by 13% over the last year as compared to a gain of 6.3% for the wider FTSE100 index and are now ahead by 52% over the last five years.

Even so, compared to the more recent highs achieved in July 2021, the price has fallen by more than 20% and even at these levels the shares are not obviously cheap in terms of historic valuation. Investors have more recently reset their expectations and it seems unlikely that the market consensus of the shares as a hold will be boosted until more measurable and sustained progress can be demonstrated.