Kingfisher stages relief rally after Q1 results

Kingfisher has had a number of false starts in recent times, with generally pedestrian rather than transformational progress. This first-quarter update is no exception, with a mixed showing, although there are some extenuating circumstances such as a late start to spring which impacted footfall, and some strong comparatives. For today, the share price reflects a glass half-full reaction.

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Core categories, which account for 65% of overall sales, grew by 0.6% on a like-for-like (LFL) basis, although Big-ticket (15% of overall sales) and Seasonal (20%) suffered by 4.4% and 3% respectively, with a generally strong kitchen performance unable to arrest the slide in the bathroom category, where a range review is planned this year.

More promisingly, there was some sign of life in Kingfisher’s overseas operations, which have laboured under the weight of economic indifference. In France, sales at Castorama grew by 1.8% and at Brico Depot by 1.1%, although tellingly Big-ticket sales dropped by 9.2% LFL. The long-suffering Castorama unit remains in focus as the group simplifies and modernises the store estate and increases the reliance on e-commerce sales, although this restructure is a slow burner. Sales were up by 3.3% in Poland, with strong showings in trade and e-commerce.

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The usually reliable UK operations were something of a mixed bag. Revenues at B&Q fell by 3% and by 4.1% LFL against some strong comparatives, although e-commerce was a bright spot with an increase of 16% in sales. At Screwfix, long since Kingfisher’s jewel in the crown, the unit continued to hold its own against ever stronger comparatives and is finessing its optionality, with 75% of sales now coming from trade and 60% from e-commerce. This is quite apart from an early-stage international rollout, with a longer-term ambition of 600 stores in France. Screwfix now accounts for 21% of group sales and contributed with a 5.5% spike in revenues to £712 million, and LFL growth of 4.1% as its “Screwfix Sprint” and Click & Collect options gained further momentum.

Taken together, these contributions resulted in a 1.4% increase in revenues to £3.3 billion, although underlying LFL sales dropped by 0.7% despite some decent showings (excluding Screwfix) in e-commerce and trade sales, which grew by 14% and 17% respectively. There has been an increasing penetration of Own Exclusive Brand (OEB) products which, although not referred to in this update, could provide a further springboard.

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Nonetheless, challenges remain. Increased taxes in both the UK and France are a burden on the group, while big ticket and seasonal sales expose Kingfisher to both cyclical pressure via housing markets as well as unpredictable weather.

In addition, the current conflict in Iran has pushed energy costs higher, while the consumer could also retrench, quite apart from the fact that the housing market is yet to show any signs of a sustained recovery. As a result, the shares have fallen by 18% over the last three months, undoing much of the progress which had more recently been made.

Meanwhile, a dividend yield of 4.2% alongside the ongoing £300 million share buyback programme are price supportive. The outlook for the forthcoming year was maintained by the group, with adjusted pre-tax profit expected to fall within a range of £565 million and £625 million (£560 million for the last year), although free cash flow growth could be limited, with a range of between £450 million and £510 million expected (£512 million).  

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The outlook for the company among investors has tended to receive a mixed reception of late, although the initial reaction to this update falls on the side of a positive relief rally which recognises the areas of resilience the group has highlighted.

Prior to today, the shares had fallen by 3% over the last year compared to a spike of 19.2% for the wider FTSE100, and remain 20% lower than the highs reached during the DIY boom of the pandemic, and are 30% down from the previous peak reached in 2014. Even so, the shares are not obviously cheap in terms of historic valuation and the jury will remain out on prospects. Indeed, it remains to be seen whether the extremely warm reaction to this update is enough to lift a market consensus which has more recently drifted to a sell.