DIY giant Kingfisher was heavily on the retreat during midweek business, a poor reception to full-year trading numbers making it the biggest loser on Britain’s blue-chip index.
The company was last dealing 5% lower from Tuesday’s close.
Testing Times
Kingfisher announced that while total revenues rose 8.7% during the 12 months to January 2017, to £11.2bn, on a like-for-like basis these advanced just 2.3%.
Adjusted pre-tax profit at the business rose 8.3% last year, to £743m.
However, the retailer had favourable currency movements to thank in large part for last year’s bottom-line rise, sterling’s erosion following the Brexit vote benefitting full-year profits to the tune of £52m.
And investors have taken fright on Wednesday following Kingfisher’s murky warning over trading conditions looking ahead.
Chief executive Véronique Laury commented that “the EU referendum has created uncertainty for the UK economic outlook and we remain cautious on the outlook for France, especially in light of the forthcoming presidential elections.”
Britain and France are Kingfisher’s core markets, responsible for 44% and 38% of group sales correspondingly.
Screwfix Shines
Kingfisher had a robust home market to thank for last year’s revenues rise. UK like-for-like sales advanced 5.9% in 2017 thanks to excellent sales at Screwfix. Robust digital demand, the success of new specialist trade desks and new store roll-outs has helped propel revenues at the division during the past year.
And Kingfisher plans to keep sales galloping higher with a stream of new store openings. The company is hoping to have 700 Screwfix stores eventually up and running, up from its prior target of 600 and an increase from 517 at present.
However, the pressure created by weakening consumer spending power in the UK threatens to put the kibosh on further strong growth here as inflation sprints ahead. Latest data showed the CPI gauge hit 2.3% in February, the highest level since September 2013.
As well as this, Kingfisher also faces increasing competition as Bunnings’ takeover of Homebase begins to bear fruit.
France Flails
Meanwhile, Kingfisher’s performance across the English Channel has been less reassuring in recent times, and is in danger of worsening should the upcoming Presidential elections dent shoppers’ appetite even more.
French like-for-like sales dipped 2.7% last year as a contracting home improvement market muted till activity at Kingfisher’s Castorama and Brico Dépôt stores -- the Gallic DIY market shrunk 0.6% during the past year, the retailer noted.
As a consequence of these trading troubles, the City expects earnings to grind to a halt from this year. Indeed, a fractional dip is currently pencilled in for the year to January 2018, a forecast that creates a P/E ratio of 13.5 times.
Whilst below the forward average of 15 times for the broader FTSE 100, I believe Kingfisher’s reading does not reflect the chance of earnings dropping much more heavily than currently anticipated in the months ahead.
I reckon investors should steer clear of the retailer as conditions in its core marketplaces could become much, much more difficult.
