Home improvement giant Kingfisher's (KGF) downwards dive continues, the shares swooping 7.4% lower to 311.2p. Downgrades accompany a downbeat second quarter update which comes as a severe disappointment following a weather-boosted Q1.
The world's third biggest home improvement products purveyor, whose retail empire spans 1,100 plus stores across Europe and Asia, is Thursday's main share price casualty.
In short, over the ten weeks to 12 July, group like-for-like sales, representing stores open for more than year, slipped 1.8%. There was a 1.3% same-store decline seen in the UK & Ireland, where Kingfisher trades as DIY chain B&Q and trade tools-to-hardware products brand Screwfix. Against a tough prior year Q2 comparative, this poor result reflects the pull forward of seasonal spend into Q1 at B&Q following a balmy April. Analysts also reckon the World Cup proved a distraction, as consumers got caught up in a football frenzy and shelved home improvement spend.
CEO Ian Cheshire (pictured below) also spooks the market by reporting a sharp deterioration in demand in Poland and also key market France. Kingfisher suffered same-store sales declines at Castorama and Brico Depot amid softening home improvement and house building markets across the channel.
'It is unclear whether this recent weakness is short term phasing in nature, though we will know more by our interims in September, having then traded through our key summer months,' cautions Cheshire, adding that 'in the meantime we are accelerating our self-help margin and cost initiatives to help support our second half performance.'
Today's disappointing missive masks some bright spots for Kingfisher, including gross margins up in all geographies in Q2, strong like-for-like sales at Screwfix, as well as news the acquisition of French home improvement retailer Mr Bricolage is progressing well and awaits clearance from the competition authorities.
Freddie George, retail analyst at Cantor Fitzgerald Europe, sticks with his 'Hold' rating, though he reduces his full-year pre-tax profit forecast of £805 million to £780 million, taking EPS of 23.6p to 22.9p. 'We are also reducing our target price to 350p from 400p,' says George, who notes 'Kingfisher, which has fallen from 440p at the beginning of April, has been significantly impacted by the trend for investors to switch from growth to value and sector rotation out of housing geared stocks.'
He continues: 'It is now beginning to look interesting value considering the company’s ability to generate significant free cash flow, which has prompted a £200 million share buyback in full year 2015, and its dominant market positions in the UK and France.'