Latest Kingfisher shares sell-off explained

Met by a further wave of selling, Richard Hunter, head of markets at interactive investor, explains why markets have reacted to latest results from the DIY firm.

While there are some glimmers of hope for Kingfisher's fortunes, the company remains in a difficult place and the update is confirmation of a long road ahead.

Notable by its absence is any update on progress within the digital space, which may have been something for investors to cling on to. 

Of particular concern is the Castorama business, where like-for-like sales fell by over 7% during the third quarter, due in part to weak footfall and the situation is likely to be hampered further by the current national demonstrations in France. This part of the business is receiving particular attention at Kingfisher, where a marketing campaign and low-price strategy are attempts to stem the bleeding over the second half. 

In terms of the international business, the company has decided to throw in the towel in Russia, Spain and Portugal, with any exit costs yet to be announced. In the UK, the B&Q remains under pressure and a drop in like-for-like sales of 2.9% is another contributor to the overall group decline of 1.3%, which is worse than expected. This all comes against a backdrop of general retail malaise, which amplifies the challenge which Kingfisher faces.

Source: TradingView (*) Past performance is not a guide to future performance

There are some crumbs of comfort, with strong momentum being maintained at the company's Screwfix unit, where like-for-like sales growth of 4.1% stands out and, geographically, in Poland where progress continues to consolidate. 

Meanwhile, the fact that gross margins improved over the period is a welcome development, and the share buyback confirmation should offer some support. In the meantime, investors are to an extent being paid to wait, with a dividend yield of 4.4% offering a return which is comfortably in line with the FTSE 100 average.

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 Even so, Kingfisher's transformation is a work in progress and it may be some time before the benefits are fully felt. The shares have not responded well to recent updates, and over the last year have dipped 19%, as compared to a 6.2% decline for the wider FTSE 100. 

Much of this weakness has come over the last six months and, while the outlook for the company remains clouded in some doubt, the recent downgrade of the market consensus from a 'buy' to a 'hold', albeit a strong one, is likely to prevail.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.