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DIY chain Kingfisher (KGF) has been struggling to ‘do up’ its flagging business for so long that its emergence as a pandemic makeover success story must surely have left all ardent DIYers in awe. And maybe just a few wary of cracks emerging in the longer term.
It certainly was not in Kingfisher’s five-year turnaround plan, but the past year of lockdowns and ‘stay home’ messaging has been a boon for the group.
So much so that it expects full-year adjusted pre-tax profits, due out on Monday, to come in around the £740 million mark; 6% higher than the latest estimates. That is as sales in the quarter to 9 January were up 16.9%.
This time last year, with the pandemic just starting to make its presence felt across the globe, Kingfisher was in trouble. Despite throwing everything it could at the high-profile ONE Kingfisher transformation project, it was proving a big, heavy ship to turn around.
Profits were down, sales were down and costs were rising. And with no sign of the job being anywhere near completion the £800 million five-year cost of the recovery was weighing heavily on the share price.
The nation had tightened its spending belt and with the consumer slowdown here and abroad hitting the group hard, it was difficult to see what the mother of all renovation projects would even look like once it was finished.
Cue the pandemic though and there was an almost immediate volte face that transformed Kingfisher’s fortunes. With the nation locked down and so many furloughed and staying home, the time suddenly seemed perfect to get all those DIY jobs done.
A surge in home and garden improvements among locked-down Brits lifted first-half UK operating profits 20% above forecasts.
And that trend has continued. Reflecting the pandemic trend for working at home, sales of sheds were up fivefold while 2020’s long, hot summer pushed sales of barbecue and patio sets up more than sevenfold. Online sales have risen 164%.
The pandemic is delivering the turnround that successive Kingfisher chief executives had failed to do. All of a sudden, home improvement is the name of the game, and Kingfisher has found itself perfectly placed to cash in.
In an update, the group said that third-quarter revenue grew by 17.6% to £3.5 billion, buoyed by higher footfall, strong growth in ecommerce and a boost to click-and-collect sales. For the first two weeks of the fourth quarter, revenue growth slowed slightly to 13% - tempered slightly by the effects of England’s second round of lockdown restrictions.
Such is its confidence that Kingfisher joined the list of retailers promising to repay business rates relief received from the government during the pandemic, pointing to strong sales since its stores reopened in April.
The FTSE 100 company expects to return £130 million of business rates relief in the UK and Ireland - equivalent to a bill of roughly £110 million in the year to January 2021, and £20 million the following 12 months. The company said it had already paid back its furlough support in full, totalling £23 million.
Now, rather than talking turnaround Kingfisher has its eye on expansion; something that would have been out of the question this time last year.
While it recently acquired NeedHelp, a French start-up that offers DIY services to those wary of accidentally knocking a nail into a water pipe, the big news was that Screwfix the multi-channel retailer aimed at the trade, plans to open more than 50 stores this year, creating around 600 new jobs.
Of the new stores, 40 will be in the UK, creating up to 500 new jobs, with the remaining 10 stores planned in Ireland, creating 100 new jobs. The news came as Screwfix, which earlier this year reached annual sales of £2 billion for the first time, and which currently has 711 stores in the UK and 12 stores in Ireland, announced an increase in its overall target for store numbers. It now plans to increase the total number of Screwfix outlets to over 900 in the UK and Ireland, up from the previous target of 800.
Expansion overseas is also stepping up the pace, with news just in of a franchise agreement with the Al-Futtaim Group to expand B&Q in the Middle East, with the first step being the opening of B&Q franchised stores in Saudi Arabia.
The big question in the near term, of course, has to be whether the roll-out of the vaccine programme and the reopening of the world post-pandemic sees a return to out of home spending taking a priority again.
If people are jetting off on holiday and winding their way back to the office, then maybe those home improvement tasks will take a back seat once again. Time will tell, but for now the DIY giant is happily papering over the past few dismal years and putting the finishing touches to its re-energised business. Full year results are out on Monday.
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