2Q17 SALES

Kingfisher reported an 8.4% increase in total group sales in 2Q17, which ended July 31; at constant currency. It grew group sales by 3.2% and comparable sales by 3.0%. Group performance was underpinned by strong comparable sales growth in the UK, Ireland and Poland. Kingfisher management noted they had completed the firm’s disposal of its 30% interest in B&Q China in the quarter, which yielded net cash proceeds of £63 million. Management also noted £150 million had been returned to shareholders via buybacks since the last year end.

PERFORMANCE BY SEGMENT

The company posted 5.1% growth in total sales in the UK and Ireland. At constant currency, total segment sales were +5.0% and comps were +7.2%.

• B&Q UK and Ireland, the company’s consumer-focused banner, grew total sales by 0.5%, sales at constant currency by 0.3% and comps at constant currency by an impressive 5.6%. Store closures boosted comps by approximately 200 basis points by transferring some sales to remaining stores. Seasonal ranges were strong, with category comps up 9.6%.
• Screwfix grew sales by 24.5%, both as reported  and at constant currency, and comps at constant currency by 13.3%. The company noted new and extended ranges helped boost sales. We expect the maturation of its fast-growing estate flattered comps.

All numbers quoted in the following commentary are at constant currency. France fared poorly, with total sales down 1.4% and comps down 3.2%. The company noted the market was affected by industrial action, wet weather and “a more challenging environment.”

• Total sales fell 2.2% at consumer-focused chain, Castorama, and its comps were down 3.3%. Poor weather meant seasonal categories were weak, and comps were down 4.3%.
• Trade-focused Brico Dépôt performed better at the top line; sales edged down a total of 0.3% and fell 3.1% on a comparable basis.

Kingfisher performed strongly in its other international markets:

• Total sales grew by 10.5% and comps by 7.3% in Poland, due to a, “currently supportive market,” and successful new ranges. Seasonal ranges turned in comps of +10.7%.
• Russian sales grew by 3.4% in total and by 5.8% on a comparable basis.
• Spanish sales increased by 6.6% in total and by 4.3% on a comparable basis.

The company stated it had not seen any evidence of an impact from the country’s vote to leave the EU.

UK IN CONTEXT: RETAIL SALES DATA

UK retail sales data, also published today, shows DIY and hardware stores’ sales grew by 0.6% on average in May, June and July, with negative growth in June and July. Kingfisher’s total UK and Ireland sales growth of 5.1% therefore represents substantial market-share gains. B&Q’s total growth of 0.5% broadly tracked the sector and Screwfix’s 24.5% surge in sales on the back of store openings indicates a leap in UK market share.

GUIDANCE

Kingfisher will report 1H17 results on September 20. The company offered the following gross margin guidance for 1H17:

• UK gross margin is expected to be down 100 basis points and reflects the strong growth at Screwfix and B&Q store clearance due to closures.
• France gross margin is expected to be up 50 basis points due to less promotional activity.
• Poland gross margin is expected to be up 150 basis points due to strong trading.

French operating costs will increase by around £10 million in 1H17, due to certain levies; however, the company expects this to be offset by a corresponding reduction in 2H16. Kingfisher’s Chief Executive Officer, Véronique Laury, said the company remained “cautious on the short-term outlook.” For FY17, analysts expect Kingfisher to post revenue growth of 6.0% and net profit growth of 14.7%, and to turn in GAAP EPS of 21 pence, flat on FY16.