Kingfisher results reflect a different reality

Kingfisher shares are some way from their recent peak, but still significantly higher than their pre-pandemic price. Our head of markets discusses latest results and how that might affect sentiment.

It appears that some of the concerns which had weighed on Kingfisher's (LSE:KGF) share price in recent months over slowing growth can, for the moment, be put to bed.

In particular, there was a question over whether the DIY boom peaked over the period of the pandemic as homeowners looked to refurbish their properties. There was also concern that being freed from lockdown restrictions would result in discretionary spend moving over towards holiday spend. In addition, the impending cost of living challenges in the UK could also result in lower purchases, especially of big ticket items.

However, these full-year numbers from Kingfisher reflect a different reality, at least for the time being. Apart from the ongoing growth of the DIY segment, of equal importance is the strength of the “DIFM” (Do It For Me) and trade business. In terms of the latter, the Screwfix unit in particular has long been a shining light within the group, which Kingfisher is now expanding as part of its accelerated transformation programme.

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Apart from the 70 new Screwfix stores which will be opening in the UK and Ireland, there are also plans to test the product in international waters with a presence in France. Meanwhile, the B&Q business is also maintaining growth at a good clip, while the e-commerce business is growing apace. Two years ago, e-commerce accounted for 8% of overall sales, whereas now the figure is 18%. Sales have improved by 5.3% over the last year, and by 171% compared to two years ago. Expansion of the Click & Collect and Home Delivery options have boosted sales, as has the growing number of products available online.

Perhaps unsurprisingly, Kingfisher is keen to note that the year was one of record revenues and profits. Revenues were largely in line with expectations, whereas pre-tax profits of £1 billion represented growth of 33% from the previous year and compared to forecasts of £960 million. Underneath the headline figures, like-for-like sales grew by 9.9% against an expected 8.9% and by 18.1% compared to pre-pandemic levels. Gross margin also nudged higher to 37.1%, although expansion took its toll on cashflow, alongside which the net debt figure also rose by 12.7% to stand at £1.57 billion.

Nonetheless, Kingfisher is confident that the transformation plan is ahead of schedule and of its further progress. As well as an ongoing share buyback programme, the company has increased the dividend that gives a projected yield of 4.3%, which is strongly attractive even in the current rising interest rate environment.

The outlook comments from the group are also largely positive, hoping to continue its momentum with further market share growth, expansion of “own exclusive brand” products, mobile-led innovation and a continuing eye on cost containment and rightsizing. This is despite a reduction in sales in the first quarter of the new year, which will inevitably pique the interest of bears tracking the stock.

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For the moment, the final piece of the success of the transformation might be stable share price appreciation. This can be viewed in a number of ways, with fears of slowing growth resulting in a decline of 17% in the last six months, leaving the performance over the last year to be a drop of 7%, as compared to a gain of 11% for the wider FTSE100.

On the other hand, taken against the pandemic lows of March 2020, the price has added 135% which is recognition of the progress made. Whether this in turn leaves the shares up with events is therefore open to debate, with the market consensus of the shares as a "hold" implying that this may be the case, especially in light of a mixed outlook to come.