Investors shed Kingfisher stocks as trading update a ‘clear disappointment’
After a strong run for much of the year, Kingfisher stocks have plummeted more than 13 per cent this morning as investors reacted to an underwhelming sales update.
The top end of its previously-guided profit forecast of between £510m and £550m has been shaved to between £510m and £540n.
While the estimate “does not represent a profit warning as such,” head of markets at interactive investor Richard Hunter suggested that a “note of caution” caused shares to drop in early trading.
“Areas remain where Kingfisher needs to get its own house in order, most notably an underperforming French operation,” Hunter added.
The French arm of the B&Q and Screwfix owner, which accounts for 30 per cent of group sales, only contributed to 16 per cent of profit. Like-for-like sales in France, “where the pressure has been in evidence for some time”, dropped by 4.3 per cent in the quarter, Hunter added.
Sales in France have been affected by low consumer confidence, as well as longstanding structural problems like shortages and a demotivated team, according to The Telegraph.
The share price decline partly offsets what had been a strong run, with the shares having risen by 38 per cent over the last year, as compared to a gain of 10.3 per cent for the wider FTSE 100, he explained.
Analysts mixed on Budget impact
Kingfisher said that changes to UK employers’ National Insurance Contributions (NICs) will add cost headwinds of £31m next year, although it will “offset the impact of wage increases through structural cost reductions and productivity gains”.
The company also expects a £14m hit from similar changes to wage taxes in France, as well as the postponement of the abolishment of CVAE taxes (a sales-based tax).
The combination of the changes will therefore be £45m, with only “part” of the overall effect on profit to be offset by additional mitigations, Kingfisher said.
Mark Crouch, market analyst at investment platform Etoro, described the Budget as a “hammer blow” to the retailer, with the financial strain of the tax rises on UK business “becoming increasingly apparent”.
Crouch also pointed to the potential negative effect of the budget on Kingfisher’s suppliers.
“With customer confidence playing a central role to Kingfisher’s business, it’s clear smaller trade businesses have been rattled by the Budget. Therefore, investors will be hoping that the negative reaction is short-lived and optimism will spring back once the dust has settled,” Crouch said.
AJ Bell investment director Russ Mould offered a more uncertain outlook, questioning whether Kingfisher would be able to find the further cost efficiencies it needs to offset the cost headwinds.
“Companies have spent the past few years focusing on operating improvements and it’s hard to keep finding new ways to save money without cutting back too far and damaging service levels,” Mould said.
Like Crouch, Mould focused on the essential nature of confidence: “A plan is in place to drive greater sales to trade customers, do more via e-commerce, and roll out more compact stores… This plan will only work if homeowners are ready and able to splash the cash on home improvement projects, supported by a strong economy which makes people feel secure in their jobs and happy to shell out money,” he said.
Interactive Investor’s Richard Hunter, meanwhile, suggested that the UK market may be “resilient enough” to withstand the challenges.