Must read weekly preview: Kingfisher, JD Sports, Vistry

Kingfisher half-year – Tuesday 22 September

Richard Hunter, Head of Markets, interactive investor says, “Kingfisher (LSE:KGF) has had a number of false starts over recent times, with generally pedestrian rather than transformational progress. Its first-quarter update in May was no exception, with a mixed showing, although there were some extenuating circumstances such as a late start to spring which impacted footfall, and some strong comparatives.

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The outlook for the coming 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).  

In the meantime, at the first quarter there were differing fortunes across the group. 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% like-foe-like (LFL). The usually reliable UK operations were something of a mixed bag, where 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.

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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.

Perhaps understandably having fallen by 7% so far this year given this difficult economic backdrop, the shares have managed a gain of 20% over the last 12 months. More recently this has been underpinned by a dividend yield of 4.2% which, alongside the ongoing £300 million share buyback programme are price supportive.”

JD Sports Fashion half-year – Wednesday 23 September

Richard says, “Last month’s trading update provided a chance for JD Sports Fashion (LSE:JD.) to reveal that its fortunes were long overdue a break, but sadly it missed the opportunity by a fair margin. The shares have fallen by 18% over the last 12 months and by 12% in the year so far, driven by several previous profit warnings.

Indeed, JD Sports reduced its adjusted pre-tax profit outlook for the full year to a range of £700-800 million, down from a previous £750-850 million, and in comparison to the £852 million recorded last year. Its guidance for free cash flow remains unchanged at £460-520 million, but this was of scant solace to a company caught up in factors largely outside of its control.

Its strategy remains intact, but the delivery is proving to be a stumbling block. Group sales are dominated by footwear (60% of the total) and apparel (30%), whereas by region North America (35%) and Europe (34%) are its largest markets. JD has strengthened its presence in these countries with relatively recent purchases, namely the £900 million acquisition of US retailer Hibbett and a £450 million takeover of French company Courir.

However, it was revealed that group like-for-like sales were down by 3.1% for the quarter, comprising falls in North America and Europe of 6.8% and 2.7%, while the lesser contributing regions, the UK (26% of group sales) and Asia Pacific (5%) made some small progress with gains of 0.8% and 1.4% respectively. Within the overall numbers, there was a glimmer of light for online sales, which rose by 2.6% over the period, while replica football kit sales in the UK were stronger given the World Cup competition.

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More broadly, JD has no direct exposure in the Middle East but second-round effects such as the inflationary impact are in evidence. Lower income shoppers are under pressure due to rising energy costs and any cost-of-living demands on individual budgets, particularly in its core younger market. More positively, Sportswear continues to take share within apparel due to rising participation in athletics, particularly among higher income consumers who tend to have a greater propensity to spend regardless of the economic backdrop.

However, the group has needed to sacrifice some margin with promotional activity of its own to stem the sales decline, although it has upgraded its e-commerce capabilities, improved its global supply chain and automated one of its larger distribution centres. In all, JD Sports remains between a rock and a hard place, with no obvious signs of the tough backdrop subsiding.”

Vistry half-year – Thursday 24 September

Richard says, “It remains far from clear whether Vistry Group (LSE:VTY)’s fortunes are beginning to improve, even though its difficulties may be largely priced in following a vertiginous share price fall of 57% in the year so far and of 80% since its recent peak in July 2024.

There was some cheer in August when Homes England confirmed Vistry as one of 33 strategic partners for its £39 billion, 10-year Social and Affordable Homes Programme (SAHP), which for Vistry will mean £350 million of grant funding to support 3,028 homes within this unprecedented Government funding which is aimed, in part, to deal with the national housing supply shortage.

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However, this is likely to have little impact on these half-year results, whereby the group previously estimated that it was in line for a loss of £30 million, although it could improve future earnings visibility within a new funded pipeline. Of more interest will be the simultaneous announcement of a strategic review, where Vistry may step up its focus on cash generation to bolster the balance sheet, in addition to the previous decision already made not to pay a dividend.

Even so, its open market business is still hampered by consumer affordability challenges, less interest rate cuts than had previously been anticipated and ongoing uncertainty around the Budget, even though a substantial forward order book of £4.5 billion could provide a strong springboard for the year to come. Previous profit warnings have wrought damage on the share price which the company has been unable to repair, and the update at least provides an opportunity to provide some rather more positive news.”