Kingfisher results reveal huge task for new CEO

After a five-year recovery plan failed, a new boss must quickly justify optimism around his arrival. 

Four years into a rebuilding job that was supposed to add £500 million to profits, long-suffering Kingfisher (LSE:KGF) shareholders were left staring at the same old problems today.

Interim results for the B&Q and Castorama retailer reveal underlying profits down 6.4% to £353 million, with few signs of trading momentum after like-for-like sales fell 1.8%.

In fairness to Veronique Laury, who started the five-year One Kingfisher transformation back in 2015, conditions in the key markets of the UK and France have hardly been helpful. There's also been the impact of dealing with the roll-out of a new unified IT platform.

But it's clear that the pace of profit growth hasn't been anything like Kingfisher envisaged when Laury set out her £800 million plan to leverage the scale of the European DIY giant. Shares are down 25% in the past year, with Laury heading for the exit door as a result.

She will be replaced next week by Thierry Garnier who, as the former CEO of Carrefour China, is expected to provide a "fresh perspective" on the lacklustre trading performance.

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

Garnier's imminent arrival has sparked a mini-revival for the stock in recent weeks, with investors eyeing a new approach to under-performing elements of the transformation. Morgan Stanley, for example, blames Laury's product unification strategy for the weak trading performance.

Jefferies analyst James Grzinic described the change programme as ambitious and rationally articulated, but said it had been undone by "spectacular execution mistakes".

He hopes the new leadership will provide greater clarity on the causes of the market share losses, particularly in France where DIY spend has remained static. Grzinic urged management to get back to the retail basics rather than attempt to overlay new, major initiatives on top of the existing projects.

As well as a new approach from Garnier, shareholders will also be looking at the potential for corporate activity. Screwfix, which continues to perform strongly after better-than-expected 5.1% growth in like-for-like sales for the half year, is seen as being undervalued within the wider group and could be given a standalone future.

Grzinic said Kingfisher's current multiples, including a 2019 price/earnings ratio of 9.6x, also meant the group as a whole was an "obvious target" for private equity suitors.

In a note last week, he pointed to the attraction of strong market positions and lower digitalisation risk than elsewhere in retail, plus the company's history of strong cash flow generation, and the potential for a number of self-contained units to be sold off.

Operations in Poland and Romania also grew like-for-like sales in the half-year period, whereas the performance of B&Q in the UK was disappointing with same-store sales down 3.2%. The overall outlook remains mixed, but with unified sourcing benefits flowing from the transformation plan expected to keep the full-year margin flat on a year ago.

Jefferies had a price target of 320p prior to today's results, whereas Morgan Stanley analysts are at 245p, with UBS holding a 'sell' recommendation and price target of 205p.

The interim dividend was held at 3.33p, while free cash flow reduced to £204 million from £280 million a year earlier. Kingfisher trades with a forward dividend yield of 5.7%.