29th Nov 2023 16:00
(Alliance News) - Kingfisher PLC outlook is threatened by a rise in the minimum wage in the UK, as well as muted sales in France and Poland, analysts at UBS predicted.
The DIY retailer, which owns the B&Q chain, last week lowered its full year guidance. It said it expects adjusted pretax profit of around GBP560 million, compared with GBP758 million a year ago. It had cut guidance in September to GBP590 million from GBP634 million.
UBS grimly predicted that more downgrades to profit forecasts for Kingfisher could come.
"The key question investors asked us was the magnitude of downgrades that earnings could see in the near term - and given challenging end markets, we think the earnings downgrade cycle could continue," UBS analysts explained.
Kingfisher last week said sales in the third quarter ended October 31 declined 2.1% to GBP3.24 billion from GBP3.26 billion a year ago.
In UK & Ireland, sales amounted to GBP1.60 billion during the quarter, up 3.3% year-on-year from GBP1.55 billion.
However, the growth in the UK & Ireland was more than offset by an 8.7% decline in French sales to GBP1.03 billion from GBP1.10 billion. Sales in Kingfisher's Other International region fell 3.7% to GBP608 million from GBP621 million a year ago.
UBS commented: "We remain cautious on the outlook for France and Poland, and lower our estimates given the incremental information presented at Q3; the UK, however, was much stronger than we expected."
A tough sales outlook in France and Poland is not all Kingfisher must be mindful of. The national living wage will rise to GBP11.44 in April next year, the UK Treasury announced last week.
The rate is currently GBP10.42 for workers aged over 23, but the new figure will apply to 21 and 22-year-olds for the first time.
The national minimum wage for 18 to 20-year-olds will also increase by GBP1.11 to GBP8.60 per hour, the government has said.
Analysts at UBS commented: "Kingfisher does not disclose its exposure to minimum wage growth. However, we assume it likely provides competitive pay to its store staff, suggesting it could face similar levels of wage growth.
"Assuming business staff wages grow in line with average earnings, we calculate that group wages & salaries could grow 7-8% for FY23/24 and FY24/25. If Kingfisher flexes its staff levels by 3%, we estimate this wage inflation could be lowered to 4-5% instead, leading to our [pretax profit estimate for financial 2025] of GBP553 million."
UBS noted its financial 2025 profit prediction sits 7% below consensus and was lowered from GBP604 million.
By Eric Cunha, Alliance News news editor
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Kingfisher