New Kingfisher CEO admits there is ‘much to do’ as sales at B&Q slide

Criticism has been pointed towards the previous management as pace of transformation is set to slow down.

Article updated: 20 November 2019 12:00pm Author: Helal Miah

  • Screwfix business is only ray of light for Kingfisher as sales at B&Q fall 3.5%, Castorama and Brico Depot sales fall 6% and other European market sales drop 4.9%
  • Shares drop 7% in early trading as market reacts to dire results
  • Kingfisher not helped by underlying economic and market conditions, such as Brexit uncertainty, as homeowners put off undertaking major home improvements
  • New CEO, Thierry Garnier, lays blame on predecessor, citing organisational complexity and trying to do too much restructuring at once as main reasons for poor performance
  • Recommendation: In light of today’s results and the unchanged market environment, we maintain our cautious ‘Hold’ recommendation for investors willing to accept a medium level of risk

The only ray of light has been the Screwfix business in the UK, which saw sales rise by 7.9% as the trend moves away from DIY to the professional market continues. The rest of the business was dire: B&Q sales fell 3.5%, in France both the Castorama and Brico Depot brands saw combined sales fall 6%, while other European markets sales fell 4.9%. Kingfisher has not been helped by underlying economic and market conditions, such as the Brexit uncertainty in the UK, potentially leading homeowners to hold off major home improvements, while in France competition from rivals has been an ongoing issue. Weather related issues also played their part and the numbers published across the divisions were weaker than anticipated leading to the shares trading in excess of 7% down.

However, Thierry Garnier, who has only been in the job for eight weeks, has the luxury to say that a lot of this is self-inflicted, laying the blame on the previous management led by Veronique Laury. The criticism includes that they failed to get the right balance between growing the groups scale and staying close to the local markets, as well as organisational complexity, and trying to do too much restructuring at once, which altogether brought disruption to sales and alienated customers. This language suggests that the pace of restructuring will now be a little more measured with transformation costs in the P&L accounts expected to be lower at £40-£50m and exceptionals now flat (previously up to £40m) for the current financial year.

For a struggling business it’s fairly normal to see a new CEO trying to throw the baby out with the bath water and effectively saying the previous management didn’t do a great job, but fairly unusual for them to also say the pace of transformation needs to slow. Even so, Thierry Garnier will no doubt see the external economic factors add to the internal structural and operational challenges for the group. With the shares having reached lows not seen since 2009, his tenure may start off with the shares being kicked out of the FTSE100 in a couple of weeks’ time should the current weak sentiment continue. We remain with our cautious hold recommendation on the stock.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.