21st Mar 2023 12:46
(Alliance News) - Kingfisher PLC on Tuesday reported a sharp drop in annual profit, as the lockdown boom in do-it-yourself house projects continued to ebb.
For Russ Mould, investor director at AJ Bell, DIY retailer Kingfisher was "always going to struggle" to sustain growth momentum, after the DIY boom during the pandemic which helped boost its financial 2022 results.
"The success during the pandemic effectively gave Kingfisher a new lease of life following years of struggles. Like many Covid winners, the DIY group will be hoping its recent success lives on and doesn't fade away. It cannot be accused of sitting on its hands, but equally there is a risk that it has bitten off more than it can chew."
In the financial year that ended January 31, the B&Q-owner reported a pretax profit of GBP611 million, down 39% from GBP1.0 billion the year prior. This reflected lower operating profit and the impact of impairments following significant increases in discount rates and revised future projections, the London-based company explained.
Adjusted pretax profit was GBP758 million, down 20% from GBP949 million. It had been forecast by market consensus to decline 22% to GBP741 million.
Kingfisher in November cut its adjusted pretax profit estimate to between GBP730 million and GBP760 million from around GBP770 million previously.
Adjusted earnings per share declined by 16% to 29.7 pence from 35.2p the year before. Basic earnings per share was down by 41% to 23.8 pence from 40.3p the year before.
Total retail profit fell by 20% to GBP923 million from GBP1.15 billion, in line with company-compiled consensus.
Sales slipped 0.9% to GBP13.06 billion from GBP13.18 billion. Group like-for-like sales fell 2.1%. This is compared to an expected fall of 2.0%, according to company-compiled consensus.
In UK & Ireland, sales dropped by 24% to GBP603 million from GBP794 million the year before. In France, sales were down 12% to GBP195 million from GBP221 million.
AJ Bell's Mould said that Kingfisher's business has two main drivers: first, the repair, maintenance and improvement market in which existing homeowners want do up their property, and second, the housing market where people moving home trigger sales of DIY goods.
For Mould, it is in the housing market where he sees potential headwinds. "There are concerns that a more muted property market in the UK could dampen demand," he explained. "That suggests Kingfisher might be only firing on one cylinder for a while."
Richard Hunter, head of markets at interactive investor, said that Kingfisher is "without doubt" a "leaner and meaner machine" after its "enforced and accelerated" transformation plan following the pandemic but said the latest numbers show some signs of faltering growth.
"A question for investors is whether to compare Kingfisher's performance against pre-pandemic levels, where there has been significant progress, or against the strong comparatives of last year, where there has not."
Shares in Kingfisher were down 2.2% at 267.40 pence on Tuesday morning in London. The stock is down 8.2% over the past 12-months.
ii's Hunter said the current market consensus of the shares as a 'sell' could indicate that the share price is "up with events for now" or that there is considered to be better value elsewhere.
"In any event, the group still has some significant work to do in convincing investors that its growth path remains on track."
Looking ahead, Kingfisher said it is comfortable with current consensus of sell-side analyst estimates for financial 2024 adjusted pretax profit of GBP633 million. Kingfisher said in February of the current financial year, sales were up 1.9%, adding that the main driver was a good performance in the UK & Ireland, with LFL sales growth at both B&Q and Screwfix.
Additionally, Kingfisher said it expects more than GBP500 million of free cash flow for the year, and said it intends to announce a new share buyback programme following completion of the existing programme this year.
Richard Hunter said, from a strategic perspective, Kingfisher "still has some firepower in its locker" moving forward.
"The continued trend of hybrid working and energy efficiency renovations continues to underpin sales, while the strength of the Screwfix brand is being exported to overseas. Similarly, the e-commerce rollout will be expanded to both France and Poland, while the group's reliance on own exclusive brands, which account for 45% of sales, is a helpful boost to margins.
"In the meantime, however, the largest home market of the UK & Ireland suffered a sales decline of 24%, which throws serious doubt on the propensity of the consumer to continue discretionary spending, with some pressure on both the Screwfix and B&Q brands."
By Heather Rydings, Alliance News senior economics reporter
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