Last month, B&Q and Screwfix owner Kingfisher issued an underwhelming second-quarter trading update.
The international DIY group attributed a 7.8% fall in total sales at B&Q to poor weather dampening its seasonal trade against tough comparables.
But, coming hot on the heels of a rocky first quarter − during which “unforeseen business disruption” sliced around 2% off sales − the news was not well received.
Kingfisher’s share price dropped on that day from above 307p to 294p and has since stagnated around the 289p mark.
Sights are therefore not set particularly high for this week’s interim results and questions are once again being asked about whether the business is on the right track.
‘One Kingfisher’ woes
When chief executive Véronique Laury took the helm in December 2014, she implemented a radical five-year transformation plan – One Kingfisher – aimed at streamlining the group’s ranges and updating its digital systems.
Read more: Véronique Laury’s vision for Kingfisher
Two years in, as with most major construction work, the retailer has encountered some bumps in the road, specifically issues relating to the introduction of its new unified ranges.
For the most part, it is these hiccups and the risk surrounding the plan’s execution that is giving the City jitters, with some brokers lowering forecasts and full-year sales estimates.
“Our main thesis on Kingfisher is that the turnaround plan will take longer, will provide substantial disruption to company operation in the next several years and will eventually provide a smaller benefit than is currently expected”
Barclays analyst Boris Vilidnitsky
Barclays analyst Boris Vilidnitsky says: “Our main thesis on Kingfisher is that the turnaround plan will take longer, will provide substantial disruption to company operation in the next several years and will eventually provide a smaller benefit than is currently expected.”
Investec analyst Kate Calvert also holds a negative outlook.
Calvert claimed the firm’s current valuation is “not cheap enough” given the “execution risk from One Kingfisher” and that the visibility on whether it will work is still two years off.
Invested parties, therefore, will be keen to hear more next week about how the strategy is unfolding and if the disruption at its hand has eased – as the retailer implied it had at its latest update.
While the DIY group is unlikely to fire on all cylinders while the work is carried out, anything in the results to ameliorate the concerns of doubters will be welcomed.
Even so, the jury will remain out on whether Laury’s vision will spell boom or bust for Kingfisher. The risk of future executional hiccups is high, and Laury is still a long way off being crowned Queen of DIY.
Drowning in competition?
What’s more, the £3.4bn UK home improvement market is becoming increasingly competitive.
With space in the sector already at a premium after Bunnings launched its assault on the UK market, digital upstart ManoMano is now vying for a bigger share.
The French disruptor has this week secured new investment to the tune of €60m, which it intends to use to fuel its next stage of growth both in the UK and internationally.
But Laury is unlikely to bow under pressure. On the contrary, increased competition should spur her on to get her One Kingfisher strategy across the finish line.
As it has previously alluded to, Kingfisher has also fallen victim to external factors, such as weakness in the French market and wash-out weather in the UK.
Vilidnitsky points out that the group’s second quarter was the fifth in a row that it reported revenue contraction in constant currency in France.
“While comps get easier for the rest of the year, the trend of losing share to [rival DIY group] Leroy Merlin is worrying,” he says.
Kingfisher is likely to have more to say about the French market and the British weather at its forthcoming results and in trading updates to follow.
However, if the business can pull off its turnaround, it could become less vulnerable to these external factors, particularly as more of its business migrates online − something analysts predict will give sales and margins a boost.
By achieving greater economies of scale and increased supplier clout, it could also be better set up to face future market volatility – no bad thing as Brexit negotiations roll on.
Still, unless trading since July has turned on its head, next week’s update is likely to bring more of the same.
Both Kingfisher and its investors will need to exercise patience and faith for a while longer.
- Kingfisher will report its second quarter results on Thursday, August 17