ii view: DIY retailer Kingfisher awaits housing recovery

Third-quarter trading update to 31 October

• Like-for-like (LFL) sales down 1.1% to £3.2 billion
• UK & Irish LFL sales up 0.4% to £1.62 billion
• French LFL sales down 4.3% to £967 million
• Other international LFL up 0.5% to £637 million

Guidance:

• Now expects full-year adjusted pre-tax profit of between £510 million to £540 million, adjusted from a previous £510 million to £550 million

Chief executive Thierry Garnier said:“Overall trading in the third quarter was resilient. Improved performance in August and September was offset by the impact of increased consumer uncertainty in the UK and France in October, related to government budgets in both countries. 

“Looking towards next year, recent political and macroeconomic developments have layered incremental uncertainty on to the near-term outlook in our markets. And so we continue to focus our energy on what we can control. As a group, we are strongly positioned to benefit from the inflection to come within home improvement.”

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ii round-up:

Kingfisher (LSE:KGF) is an international home improvement retailer operating across eight European countries including the UK and Ireland, France and Poland.

Just over 1,240 stores are in the UK & Ireland, with around 220 in France and a further 106 in Poland. The company’s 369 Turkish stores are operated as a 50:50 joint venture. 

Kingfisher brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş in Turkey.

For a round-up of these latest results announced on 25 November, please click here.

ii view:

Tracing its history back to 1982, Kingfisher is today a constituent of the FTSE 100 index. Competing against such rivals as Wickes Group (LSE:WIX), Howden Joinery Group (LSE:HWDN), Dunelm Group (LSE:DNLM) and Topps Tiles (LSE:TPT), Kingfisher sells its products and services to both consumers and trade professionals. Around 80% of sales are linked to repairs, renovations and maintenance with the other 20% related to home moves. Geographically, the UK & Ireland accounted for half of all revenues during this latest period, with France at 30% and the other international markets the balance of 20%. 

Group focuses include expanding online sales, growing sales to trades, concentrating on smaller store formats and using artificial intelligence (AI) to sift out selling opportunities. Specific moves to improve the French business include converting underperforming Castorama stores into the more profitable Brico Dépôt format and rolling out more Screwfix branches. 

For investors, the UK government Budget and French political uncertainty both resulted in consumer sales caution for each country during October. Government moves to up taxes in the UK and France will result in increased staff costs. The weather remains a key influence on sales, while slow housing transactions in both the UK and France continue to hinder home move-related sales. 

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More favourably, sales in relation to repairs, renovations and maintenance continue to prove robust. Progress regarding online sales continues to be made. Cost cuts of £120 million remain in management sights, while expanding trade sales includes plans to double their penetration in France and Poland over the medium term. 

For now, a shaving of full-year profit expectations generates caution. That said, group initiatives, likely further interest rate cuts, and an estimated future dividend yield of close to 5%, all offer grounds for existing shareholder support.    

Positives: 

• Diversity of geographical locations and brand names
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Hold