- In-store sales growth offsets online decline
- Firm talks up new store opening plan
- Analysts unlikely to push through upgrades
Pan-European home improvement retailer Kingfisher (KGF) pleased investors initially with both its latest results, which were slightly ahead of market expectations, and a new strategic plan to improve shareholder returns.
However, the shares, which initially gained as much as 3% to 283p, eased back to trade down 1.2% at 270p as analysts reserved judgement.
SOLID IF UNSPECTACULAR YEAR
Sales for the 12 months to the end of January were 0.9% lower at £13.06 billion, in line with the firm’s guidance and marginally better than analysts had forecast given the strong prior-year comparison.
On a like-for-like basis, sales were down 2.1% from the previous year but compared with pre-pandemic levels they were 15.6% higher or around 3% ahead of the market suggesting the firm has made solid progress.
Ecommerce revenues were predictably lower than in 2021-22, when lockdowns drove sales online, but they now represent more than 16% of total group revenues compared with less than half that level pre-pandemic, suggesting a permanent shift in the way customers shop.
In-store sales were driven by a record 82 new Screwfix store openings in the UK, with a further 60 new stores planned for this year, while five new Screwfix stores were opened in France with another 25 planned for this year, and seven new Castorama stores were opened in Poland with up to 80 stores planned in total over the next five years.
CONFIDENT OUTLOOK
The firm reported the new year had started well with like-for-like sales in February up 0.5% on last year as the firm maintained pricing in its key markets.
Own-brands now account for around 45% of sales, which should help the gross margin, while Kingfisher is confident in its ability to manage inflation, input costs and inventories.
As a result, the board said it was ‘comfortable’ with the current consensus forecasts of £633 million in pre-tax profit and over £500 million of free cash flow for the year to next January.
Chief executive Thierry Garnier also unveiled his new medium-term strategy, ‘focused on growth, cash generation and higher returns to shareholders’.
AJ Bell investment director Russ Mould commented: ‘Kingfisher’s business has two key drivers. First is the repair, maintenance and improvement market where existing homeowners want to do up their property. Second is the housing market where lots of people moving home should trigger sales of DIY goods, and here there are concerns that a more muted property market in the UK could dampen demand. That suggests Kingfisher might be only firing on one cylinder for a while.
‘The growth strategy will involve having a much bigger chunk of sales derived from e-commerce channels, more use of data and artificial intelligence to support pricing decisions, being a bigger player in the trade market, and rolling out smaller stores.
‘It’s good to have ambitions but this sounds like a lot of work to get done, and Kingfisher doesn’t have a good reputation for doing things quickly.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
