The results for Kingfisher (LON:) are something of a curate’s egg, with strong UK performances being partly offset by some ongoing international weakness.
At the headline level, the numbers are in line with expectations and the previously raised guidance, with adjusted pre-tax profit of £560 million a 6% improvement on the previous year. Revenues rose by 1.3% to £12.95 billion, while free cash flow of £512 million exceeded the group’s target of £500 million.
This comes despite some ongoing disappointment in its overseas operations. Like-for-like sales for the year fell by 1.1% in Poland and in France by 2.2% at Castorama and by 2.3% at Brico Depot. The long-suffering Castorama unit remains in focus as the group simplifies and modernises the store estate and increases the reliance on e-commerce sales, although this restructure is a slow burner.
In sharp contrast was a strong performance from the UK units, where streamlining, favourable weather and an increasing penetration of Own Exclusive Brand (OEB) products lifted spirits. Like-for-like sales grew at 3.3% for the UK as a whole, comprising hikes of 3.3% and 3.2% for B&Q and Screwfix respectively. For the latter, long since Kingfisher’s jewel in the crown, the unit continued to hold its own against ever stronger comparatives and is finessing its optionality, with 75% of sales now coming from trade and 60% from e-commerce. This is quite apart from an early stage international rollout, with a longer-term ambition of 600 stores in France.
For the group overall, there are moves to consolidate some of its stronger positions. Quite apart from the ongoing efficiencies being found within the business, which resulted in an improved gross margin of 38.1% versus a previous 37.3%, OEB sales now account for 43% of overall revenue, flanked by stronger showings from both trade sales and e-commerce, which grew by 12% and 11% respectively over the year.
Nonetheless, challenges remain. Increased taxes in both the UK and France are a burden on the group, while big ticket and seasonal sales expose Kingfisher to both cyclical pressure via housing markets as well as unpredictable weather. In addition, the current conflict in Iran threatens to push energy costs higher, while the consumer could also retrench, quite apart from the fact that the housing market is yet to show any signs of a sustained recovery. As a result, the shares have fallen by 16.5% over the last month, undoing much of the progress which had more recently been made.
Meanwhile, a dividend yield of 4.2%, alongside a further £300 million share buyback programme are price supportive. The outlook for the forthcoming year also implies further progress, with adjusted pre-tax profit expected to fall within a range of £565 million and £625 million, although free cash flow growth could be limited with a range of between £450 million and £510 million expected.
The outlook for the company among investors has had a mixed reception over recent times, although the initial reaction to this update falls on the side of positive. The shares have risen by 8% over the last year, as compared to a spike of 14.5% for the wider , but remain 20% lower than the highs reached during the DIY boom of the pandemic, and are 30% down from the previous peak reached in March 2014. Even so, the shares are not obviously cheap in terms of historic valuation and the jury remains out on prospects. Progress has tended to be rather more plodding than transformational and there remains a great deal of work to do, not only in terms of the share price but also a market consensus which has more recently been reduced to a sell.