Share price drops as gross profit margin falls
Heatwave helps Kingfisher results but sales in France deteriorate
- Home improvement retailer reported a solid performance with increased sales across the board, with the exception of French DIY retailer Castorama
- Despite notable improvements, the shares were down 4% in early morning trading
- We continue to recommend Kingfisher as a ‘hold’
DIY retailer Kingfisher today reported a big improvement in sales in the second quarter but the market also spotted a decline in profit margins.
Like-for-like sales rose 1.6% overall, thanks in part to the heatwave, with a 4.2% increase in the UK and Ireland compared to a 5.4% drop in the first quarter when sales were hit by bad weather. B&Q showed an especially sharp turnaround with sales up 3.6% compared to a drop of 9.0% previously.
International sales also improved but trading in France, and particularly at Castorama, remained the main fly in the ointment. Sales there dropped 3.8% and the company blames transformation-related activity. CEO Veronique Laury said the company has put additional measures in place to improve the position in France and promised to provide more details alongside the interim results in September.
While these results are clearly an improvement on the first quarter the market focused on the fact that the gross profit margin fell 40 bps. The company is taking action and still expects gross margin to rise for the full year after clearance costs, but the shares were down 4% in early trading, taking them down to near their lowest point so far this year.
While the company has a good level of cash flow and Screwfix has potential for further growth the consistently poor performance of the French business and disruption from the transformation plan mean the shares are no better than a ‘hold’.
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