After delayed full year results, Kingfisher releases Q2 early
Kingfisher issued an upwards profit warning today, guiding for an increase in first half profits compared with last year. Strong trading has continued, dragging first half revenues back towards flat despite the store closures in Q1, while government support (furlough, UK business rates) helped the cost outcome to be better than we had expected. The majority of the beat in H1 is on costs, but the sales trends are also encouraging for Q3 and beyond. We raise our full year forecasts materially, to Adj PBT of GBP 610m, but after a strong run maintain our Neutral rating.
The shift to spending on the home continues
Kingfisher''s sales growth post-lockdown has remained stronger for longer. Q2 like for like sales growth looks set to be c.+21%, ahead of our prior estimate (+16%). One surprise here is the continued performance of online, growing by c.+200% pa throughout June and July, not fading now that stores are fully operational. It was also encouraging to see Kingfisher France outperform the market in June (growing at 33% vs 30%), following several years of underperformance.
Costs savings drive the majority of the upgrades
Management has guided H1 Adj PBT to be above last year''s level of GBP 337m. We raise our forecast from GBP 238m to GBP 370m. The sales beat contributes GBP c.60m of gross profit to this, but the larger part comes from costs beating expectations. Staff furlough benefits may have been larger than anticipated and also the costs of the online shift appear to have been less painful.
Full year upgrade of over 40%
With an extraordinary H1 nearly completed, in which profits have risen year on year, we assume that DIY trends moderate in the second half of the year, and we look for H2 like for likes of c.+3%. Costs, however, will be assisted by c.GBP 60m of business rates relief, so profits should rise yoy again. We move to full year Jan-21e Adj PBT GBP 610m (was GBP 432m)...
