Kingfisher is a recovery star after boom in online sales

Shares have fully recovered from the crash, and there’s lots to like here, writes our head of markets. 

There are early signs that Kingfisher (LSE:KGF) has at last grasped the nettle in reshaping a business fit for future purpose.

Under the bonnet, the pace of change at Kingfisher is frenetic. Quite apart from a raft of management changes and a new chief executive bent on actually making the previous transformation plan transformative, the structure and focus of the business is shifting.

Some of this has been accelerated by the onset of the pandemic, most notably online sales where the company is clearly moving towards a “click and collect” service, underpinned by in-store expertise where necessary and where ordering by mobile now accounts for 46% of the group’s digital traffic. 

Kingfisher considers that certain products, such as electricals, plumbing and heating, lend themselves more obviously to the online experience, whereas others, such as kitchens and bathrooms, still require the customer’s physical presence in terms of “visualisation” and advice.

The recent spike in e-commerce trading, alongside a phased reopening of stores, has resulted in the switch of a 25% decline in first-quarter like-for-like sales to a 22% improvement in the second quarter.

Source: TradingView. Past performance is not a guide to future performance.

Kingfisher has not quite suffered the struggles of some of its competitors, with a number of factors easing the financial pain. The furlough scheme, the business rate holiday and a reduction in capital expenditure and discretionary costs (including the removal of the final dividend payment) all contribute to a healthier position, with access to liquidity of £3 billion providing further comfort.

In the meantime, the jewel in the crown remains Screwfix, which is an increasingly important part of the business. Now responsible for some 36% of UK and Ireland sales (although just 16% of the group), total sales increased by over 9% in the period, as compared to a 3% decline for B&Q.

Perhaps unsurprisingly, the scale of the challenges in remodelling the business has come at a cost. Of the £441 million of exceptional costs reported, £130 million relates to the group’s exit from Russia and there is also an impairment of £118 million on stores, largely due to reduced freehold valuations. 

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Meanwhile, the stock held at any given time is bloated and, in some cases, unnecessary, and the general complexity of the group’s structure will come under strict review in a further effort to reduce operational costs. 

Overall, group revenues are in line with expectations, although the profit figure misses on each of the ways it is presented, be that pre-tax, post-tax or adjusted. The company concedes that the financial results for this year are disappointing, but the apparent determination for change is one which will be appreciated by investors, if long overdue.

In an unusual set of circumstances, Kingfisher is to rejoin the FTSE 100 index this month having been relegated in March, despite the shares being down over 6% in the year to date and by 2% over the last year, as compared to a decline of 15% for the wider premier index. 

The promotion is due to the recovery of the shares since the mid-March lows, during which time the price has soared by 64%. The market consensus has also improved of late, with a move to ‘hold’ from the previous ‘sell’ rating perhaps reflective of brighter days to come.