ii view: Screwfix shines at DIY giant Kingfisher

First-quarter trading update to 31 March

• Revenues up 1.4% to £3.3 billion
• UK Screwfix revenues up 5.5% to £712 million
• UK B&Q revenues down 3% to £1.02 billion

Guidance:

• Continues to expect adjusted pre-tax profits for the current financial year of between £565 million and £625 million versus last year's £560 million
• Executing a £300 million share buyback programme

Chief executive Thierry Garnier said:

"We delivered a resilient start to the year, executing well and gaining market share against a soft market backdrop. 

“While mindful of the consumer environment, we remain absolutely focused on delivering our strategy, disciplined gross margin and cost management, and consistent shareholder returns.”

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ii round-up:

Kingfisher (LSE:KGF) is an international home improvement retailer operating across seven European countries including the UK, Ireland, France, and Poland.

The retailer operates more than 1,800 stores when including the company’s 50:50 joint venture in Turkey. Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş in Turkey.

For a round-up of these latest results announced on 26 May, please click here.

ii view:

Opening the first UK B&Q store in 1969, Kingfisher today employs around 70,000 people. Group products are broken down into three categories: Repair, Maintenance and Renovation accounted for 65% of revenues over this latest quarter; Big-Ticket items such as kitchens and bathrooms came in at 15%; Seasonal sales like garden furniture made up the balance of 20%.

Geographically, the UK and Ireland made most over this latest quarter at 53%. That was followed by France at 30%, Poland 14%, and other countries the balance of 3%. Kingfisher rivals include Wickes Group (LSE:WIX), Howden Joinery Group (LSE:HWDN) and even B&M European Value Retail (LSE:BME) and Dunelm Group (LSE:DNLM).

For investors, a war in the Middle East and subsequent high inflation now overshadow future interest rate policy. Like-for-like sales at its core market France continue to fall. Tough comparatives lie ahead for the group’s UK business given stamp duty concessions made over the second half of last year, while big ticket and seasonal sales offer exposure to cyclical housing markets and unpredictable weather.

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To the upside, management self-help initiatives have seen areas like trade and online sales growing. Significant market share gains and a focus on online sales helped Screwfix sales outperform other brands, with a rollout of the brand expected to continue in France. Both product and geographical diversity exist, while more than one billion annual visits across Kingfisher’s digital channels give opportunity for AI related enhancements such as product recommendations.

For now, ongoing economic headwinds hindering consumer sentiment generate caution, although continued management initiatives and a forecast dividend yield of around 4.4% are of interest for investors.  

Positives:

• Diversity of geographical locations and brand names
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Hold