Portfolio

Kingfisher's quarterly sales hammered lower but costs nailed

By Oliver Haill

Date: Thursday 17 Aug 2017

Kingfisher's quarterly sales hammered lower but costs nailed

(ShareCast News) - Sales at retailer Kingfisher took a bit of a hammering in the second quarter and the owner of the B&Q and Screwfix chains remained cautious over the outlook for the UK and France in the second half.
In the three months to 31 July, group like-for-like sales shrank 1.9%, deteriorating from the 0.6% decline in the first quarter, though thanks to increased cost savings management said they "remain comfortable" about nailing the market forecast of underlying earnings per share of 26p for the full year.

Chief executive Véronique Laury, the Frenchwoman in a the midst of a massive transformation plan to revive the slumbering Anglo-French DIY giant, said the second quarter had "broadly followed a similar course" to the first "although B&Q's performance was impacted by seasonal swings" across the two periods.

B&Q in the UK and Ireland saw total sales fall 7.8% as Laury closes unwanted big-box stores, though LFL sales were down 4.7%, versus a LFL gain of 0.5% and total sales down 4.6% in the first quarter.

The second quarter saw LFL sales of seasonal products shrink 10.7% reflecting a strong comparative period last year and sales being dragged into the first quarter this year during a period of good weather.

Elsewhere in the UK, Screwfix sales surged 17.2% and LFL up 10.8%, though this was down on the 12.6% in the first quarter.

Laury said the group continued to experience disruption across the businesses from the ONE' Kingfisher transformation programme she is pushing through, although she said this was now "on an improving trend".

"Availability of this year's unified and unique product is now approaching normal levels. We continue to adapt new processes as our transformation progresses, which will support the significant amount of change planned for H2."

"Having been very aware that this year would be challenging given the step up in transformation activity, we already have self-help plans in place to support our overall Year 2 performance, though we remain cautious on the H2 outlook for the UK and France as previously guided."

Total sales in France were down 3.3% and LFLs down 3.8%, versus sales for the wider home improvement market were up 0.4% in the quarter, according to Banque de France data.

Castorama LFLs dropped 2.8%, with Brico Dépôt sliding 5.1%.

Shares in Kingfisher were down 6% to 290p just before midday on Thursday, around four-year lows.

Analyst kate Calvert at Investec noted that the market was pre-warned to expect the sales disruption from the implementation of 'ONE' Kingfisher and trends were similar to the first quarter, with sales continuing to be impacted by circa 2% from out-of-stocks/poor availability caused by unforeseen supply chain disruption from 'unifying' the product ranges.

However, she nudged down her full year PBT forecasts by around 1% with lower sales assumptions offsetting cost savings and currency effects.

She said the sequential deterioration in B&Q was due to a shift in seasonal sales between the first and second quarters relative to last year rather than a deterioration in underlying sales.

Investec retained a 'sell' rating as although the valuation is not seen as demanding, it is "not cheap enough, in our view, given execution risk from 'One Kingfisher' and that the inflection point/visibility on whether it will work is likely to be FY19/FY20.

"While there is little in the valuation for delivery of the £500m cost savings target, we believe there is a high risk of further downgrades in the short term and see better investment opportunities elsewhere."

Neil Wilson at ETX Capital repeated the suggestion that Kingfisher could be well advised to spin-off its French division.

"But as plenty of others have talked about, it may also be time to start considering whether Screwfix is better off going it alone. Common sourcing savings -- targeted at £500m a year by 2021 -- may be the reason not to go down this route."




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