Shares in DIY retailer Kingfisher (KGF) cheapened 5.3% to 197.8p as disappointing third quarter figures showed no immediate signs of improvement in its UK or French businesses.
Recently appointed chief executive officer Thierry Garnier has diagnosed some of the home improvement giant’s problems, but a soft outlook statement sent the shares tumbling again, leaving Kingfisher at risk of being turfed out of the FTSE 100 in the next quarterly reshuffle.
CONSIDERABLE ROOM FOR IMPROVEMENT
For the quarter to 31 October, struggling Kingfisher reported an alarming 3.7% like-for-like sales decline. This was blamed on ‘softer market conditions in our main markets’, lower promotional activity to stoke sales as well as ongoing operational challenges in France and frustratingly for long-suffering shareholders, continued disruption from bringing in new ranges.
Underlying market conditions aren’t helping Kingfisher either. Political uncertainty in the UK is putting homeowners off undertaking major home improvements, while the number of consumers armed with DIY skills is dwindling.
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Garnier, who took over the hot seat from Veronique Laury in September, said he has inherited a retailer with ‘strong assets, excellent market positions, differentiated business models and strong brands’.
However, he also cautioned that ‘there is much to do to improve our performance’, dubbing trading during Q3 ‘disappointing’.
The new broom’s early assessment is that ‘we have not found the right balance between getting the benefits of group scale and staying close to local markets. We are suffering from organisational complexity, and we are trying to do too much at once with multiple large-scale initiatives running in parallel. Altogether, this has brought disruption to sales and has distracted the business from focusing on customers’.
TOUGH TRADING ALL ROUND
In France, where Kingfisher trades as Castorama and Brico Depot, like-for-like sales slumped 6.1% amid milder weather and lower promotions. In the UK & Ireland, a strong showing from expanding Screwfix was undone by B&Q, where like-for-like sales softened 3.4%.
Kingfisher also posted a 3.2% same-store decline in Poland, where market conditions softened and the implementation of new ranges together with the removal of one further Sunday of trading each month created additional headwinds.
NO QUICK FIX
In today’s update, Garnier explained his priority was to fix Kingfisher’s operational issues - ‘particularly in IT and supply chain in France’ - while simplifying the business and returning it to growth.
In terms of the outlook, he expects to see a continuation of soft market conditions and range disruption in the UK. In France, Castorama looks set to continue underperforming the home improvement market. Kingfisher also reiterated guidance for a flat full year gross margin, hardly enough to get the market enthused about the turnaround.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould said Kingfisher ‘seems to be running very hard to get nowhere in particular. Garnier is right to bring the focus to this part of the equation as ultimately all retailers should be trying to get the right products in front of the right people, in the right place and at the right time.’
Mould believes Garnier’s assessment of the problems facing Kingfisher amount to a thinly veiled criticism of Laury who left the business part way through a big five-year restructuring process.
‘However, ultimately the company could just be swimming against the tide. Fewer people seem to have the time, skills or inclination to do DIY and would rather get a professional in instead.
‘Accordingly its Screwfix chain, which sells to trade, is performing much better than the struggling retail-facing B&Q business.
‘The French and wider international businesses are also performing poorly - suggesting geographic diversification is doing the group few favours.’
