Kingfisher hammers half-year profits higher

On adjusted sales that rose 6.8% at the reported level to £5.75bn, or 3.3% on a like-for-like (LFL) basis on constant currencies, underlying pre-tax profits grew 13.5% to £436m.

This was roughly 1.5% ahead of consensus expectations of £430m, with performance driven by strong trading in the Poland and the UK, especially at Screwfix, and a return to profit growth in France.

Laury said it was a "good 'business as usual' result" in terms of sales and profits, and that while the EU referendum has created an uncertain economic outlook in the UK, "there has been no clear evidence of an impact on demand so far on our businesses", though for France she remains cautious on the short term outlook.

"Looking longer term, we are starting to build solid foundations to enable us to deliver our five year transformation, which is our key growth driver. We are making good progress on our strategic milestones for this first year and we are on track. The level of transformation activity will increase significantly, however given the expertise and energy of our colleagues we continue to feel confident about the challenges ahead."

Progress on Laury's £800m, five-year 'One Kingfisher' plan included a new unified store IT platform in B&Q, the launch of a new single group supply chain in June, followed immediately by the roll-out of the first product ranges that are unified across all the group's chains, and the completion of 80% of the planned B&Q store closures.

For the six months to 31 July, while total sales at B&Q declined 2% due to store closures the 24% growth at Screwfix meant the UK & Ireland enjoyed growth of 3.1% at constant currencies, or 6.7% on a LFL basis, while retail profits were up 8.8%.

The UK has benefited from a "broadly supportive" market backdrop, though as previously warned gross margins were down 100 basis points reflecting mix effects from strong growth in Screwfix, clearance related to the B&Q store closures and higher digital sales.

French sales were slightly above flat at constant currencies, but down 1.6% on a LFL basis, while profit was up 1.6%.

Other international sales increased by 7.5%, or 5.9% LFL, and retail profit increased by 34.2%, both driven by Poland.

Analysts at RBC Capital Markets said they saw potential 2-3% upside risk to Kingfisher’s full year consensus estimates owing to slightly better than expected results and a lower than expected net transformation plan cost in the period.

RBC, which has an 'underperform' rating as it thinks the guided growth rate of 8% through to 2019 is "fairly unexciting", said: "Whilst we believe that the new CEO’s strategy is sensible, we remain cautious on the overall trading environment for DIY, particularly in France.

"The B&Q downsizing plan is necessary given structural overspacing in the UK and it is clear that management are committed to ongoing cash returns. However, we think it will take a while for any supply chain benefits to be visible in numbers and we think the transformation plan is optimistic."

Credit Suisse said it was nudging up its current-year PBT forecasts to £784m from £776m given the higher margins in most operating units, with subsequent years flat due to lower spot currency rates.

"We have increased our target price to 430p versus 425p given higher EPS and year-end cash. Initial execution of the plan has been strong, although the heavy lifting (and peak execution risk) starts next year," the bank said in a note to clients, adding that the shares "continue to look attractive vs the sector and the UK market".

Shares in Kingfisher, having topped two-year highs in early trade, saw some profit taking with shares down 1.6% by the afternoon to 370.8p.