Castorama store
Kingfisher owns Castorama in France, where consumer confidence is at a 10-year low / Image source: Kingfisher
  • Earnings guidance downgraded
  • Weak trading in Poland and France
  • New £300 million buyback announced

Home improvement retailer Kingfisher (KGF) was the FTSE 100’s biggest faller on Tuesday, shares in the DIY products purveyor plunging 7% to 219.9p. The drop came after cutting its annual profit outlook amid poor trading from its Polish operations and a lacklustre turn in France, where consumer confidence has tumbled to a 10-year low.

The downgrade overshadowed news of ‘positive momentum’ in Kingfisher’s UK and Ireland business as well as a new £300 million share buyback from the B&Q-to-Screwfix owner, a beneficiary of the lockdown DIY boom that has is now fading.

30% PROFITS PLUNGE

Kingfisher, which also owns the Castorama chain in France, reported a near-30% drop in adjusted pre-tax profit to £336 million for the first half to July 2023 as like-for-like sales in Poland fell 10.9% and low consumer confidence led to a 3.8% like-for-like sales slide in France.

Profitability was also impacted by wet summer weather and a slowing housing market as well as higher wage and energy costs in the UK and Ireland and Poland.

And with like-for-like sales down 2.4% in the third quarter-to-date, Kingfisher is now guiding towards pre-tax profit of around £590 million for the year to January 2024.

That is down from previous guidance of £634 million and implies the company is on course for a 22% year-on-year decline.

WHAT DID THE CEO SAY?

CEO Thierry Garnier insisted trading in the UK and Ireland continues to have ‘positive momentum’ and said Screwfix, which is being launched as a pure-play online retailer in up to 20 European countries, is ‘gaining significant market share’.

However, to ‘better reflect our performance in H1 and the trading environment in our markets, we have updated our profit guidance for this year and are proactively managing our operating costs accordingly.’

Garnier continued: ‘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.’

Kingfisher still expects to generate free cash flow of £500 million this year and has announced a new £300 million share buyback programme which is set to begin in October.

EXPERT VIEWS

Begbies Traynor’s (BEG:AIM) Julie Palmer said Kingfisher is clearly adjusting to life after the pandemic when it experienced a DIY boom with consumers unable to leave home.

‘Fewer major renovation projects are likely to be undertaken as homeowners remain cautious towards taking on more debt and face continued pressure on their finances, which the company experienced acutely in its French and Polish markets,’ she explained.

JTC touches new 12-month high on strong outlook

‘A sluggish property market may mean more people choose home improvements over moving homes, providing Kingfisher with some resilience in the second half, but underlying factors are likely to continue impacting sales and revenues as consumer confidence remains shaky and the wider cost of living crisis squeezes household income in the UK and Europe.’

Edison’s Neil Shah noted it is not all negative news for Kingfisher. ‘The UK and Ireland markets displayed resilience with a 1.7% increase in underlying sales while the sharpest tool in its toolbox has been the expansion of Screwfix’s market share. Further, Kingfisher’s decision to bolster this brand’s online footprint across Europe demonstrates confidence in its potential.’

Shah added: ‘While Kingfisher faces immediate hurdles, the company’s strategic decisions, particularly in the UK segment, suggest a robust plan for recovery.’

LEARN ABOUT KINGFISHER

 

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Issue Date: 19 Sep 2023