For the most part, tailwinds persist for Kingfisher as the “new normal” continues to evolve.
Kingfisher evolving to new normal
The group has seen the benefits from the pandemic in different ways of shopping, and the new environment also leaves it well placed. Online sales, which rose by 21% over the period and by 216% compared to two years ago, now represent a fifth of group sales and is receiving further investment to consolidate the gains. Particularly strong growth in the areas of mobile and click and collect are proving increasingly popular and are slowly becoming entrenched.
Within B&Q, the best selling ranges have been kitchens and bathrooms as consumers have decided to upgrade their homes in times of enforced isolation. At the same time, general home improvements have also provided Screwfix with an additional boost, as the trade has been busy undertaking those improvements. The company is also predicting a new generation of “DIYers”, while the hybrid working model should also provide future opportunities.
Together, these drivers have led to a number of strong metrics, with like-for-like sales having risen by 23%, gross margin having improved to a comfortable 38% and operating profit by 54%. By region, gross profit has improved markedly in France by 104%, and in the UK and Ireland by 41%, while the hike of 71% in pre-tax profit is above market expectations. The strength of this performance has led to the announcement of a £300 million share buyback scheme, which will commence shortly, and an increase to the dividend leading to a healthy projected yield of 2.5%.
All is not plain sailing, however, and there are some squalls yet to be navigated. The results are coming up against increasingly tough comparatives, as evidenced by levels of current trading. In terms of these numbers, the first quarter was significantly stronger than the second, and the initial weeks of the third quarter are also suffering from slower growth.
In addition, Kingfisher is in the centre of the current supply chain blockages, impacting product supply and availability, and cost inflation which is affecting many sectors at present. More broadly, the lingering effects of the pandemic in many of its regions add an element of caution to its outlook.
Nonetheless, there is clearly progress being made and continuing investment in its online offering as well as the expansion of Screwfix stores should drive further gains. The company has increased its outlook on sales in the second half, notwithstanding that these should still be shy of the corresponding period last year.
The share price has seen a boost of 36% over the last year, as compared to a gain of 19% for the wider FTSE100. Indeed, since the lows of March 2020 the price has added over 190%, propelling the company back into the premier index last June. With much progress made and yet still much to do, the market consensus of the shares as a hold suggests that the price may be up with events for now.
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These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.