ii view: Screwfix owner Kingfisher confident it can steal market share

First-half results to 31 July

• Revenue up 1% to £6.88 billion
• Pre-tax profit down 33% to £317 million
• Interim dividend unchanged at 3.8p per share
• Announced a new £300 million share buyback programme
• Net debt down 4% to from late January to £2.18 billion

Guidance:

• Now expects full-year profit of around £590 million, down from previous estimate of £634 million

Chief executive Thierry Garnier said:

"Our LFL sales in H1 were slightly ahead of expectations, against a backdrop of unseasonal weather and ongoing macroeconomic challenges in our markets.

“We remain very positive on the medium-to-long term outlook for home improvement growth in our markets, and confident in our ability to grow market share and deliver on our medium-term financial objectives.”

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ii round-up:

Kingfisher (LSE:KGF) is an international home improvement retailer which operates from more than 1,500 stores as well as online websites. 

It trades from eight European countries including the UK and Ireland, France and Poland.
Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş. 

For a round-up of these latest results announced on 19 September, please click here.

ii view:

Started in 1982, Kingfisher today provides home improvement products and services to both consumers and trade professionals. The UK and Ireland account for its biggest slug of sales at just under half, followed by France at just over a third, Poland at a tenth and other European nations the balance. A constituent of the FTSE 100 index, stock market listed competitors include Wickes Group (LSE:WIX), Howden Joinery Group (LSE:HWDN), Dunelm Group (LSE:DNLM), and Topps Tiles (LSE:TPT).  

Headed by former Carrefour (EURONEXT:CA) executive Thierry Garnier, management pushes include expanding its trade focused sales via growth for its Screwfix and Tradepoint outlets, growing online sales, enhancing its customer data and using Artificial Intelligence (AI) to identify selling opportunities, and extending its range of generally higher profit margin Own Exclusive Brands (OEB).

For investors, the challenging economic backdrop for its customers including higher interest rates and strained housing markets cannot be ignored. Elevated costs such as wages, technology investments, new store openings and increased promotional activity in markets such as France are all weighing. The unpredictability of the weather and its impact on sales such as garden furniture also remains a constant, while diverse operations overseas brings potential currency headwinds. 

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On the upside, some costs such as those for freight have eased and online sales are growing. Both brand and geographical diversity exists, new stores aimed at trade buyers are being opened including a planned push for its Screwfix brand across 20 countries, while management confidence in improving cashflows now underwrites a £300 million share buyback programme. 

Share price performance has been disappointing for a couple of years, and recession uncertainty remains an overhang for the sector and wider stock market. For investors with a longer-term view, Kingfisher has its attractions, certainly when the economy picks up. A forecast dividend yield of over 5% is also a reasonable income stream while they wait for the turnaround.

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:

Weak hold