Q3 trading was resilient though France is still challenging Group Q3 sales were down -0.6% (1H +0.9%), or flat at constant FX. LFL sales down -1.1% versus 1H. After solid trading in August/ September, the UK and French markets were weaker in October, impacted by Budgets in both areas. UK sales were up 1.2% (1H +0.9%) with LFL +0.4% (2Q -1.4%; Q1 +1.2%). Screwfix LFL sales were up 1.8% & B&Q LFLs down 0.4%. In France, sales were down 6.4% (1H -9.2%) with LFL down 4.3% (2Q -9%; Q1 -5.3%). Castorama (LFLs -4.7%) was weaker than Brico Depot (-3.7%). Poland sales were up 6.6% (1H +2.8%) with LFL down 0.4% (2Q -0.8%; 1Q +0.4%). FY25 guidance tightened but also indicating higher costs next year due to Budgets Management has tightened FY25 adjusted PBT guidance to £510m-£540m (INVe £538m; Vuma consensus £533m) from £510m-£550m. Q4 trading to date has improved on the Q3 exit rate with LFL sales down -0.5%. FY25 free cash flow guidance remains unchanged (£410m-£460m) due to reduced inventory. The £300m buy back is due to complete by March 2025. However, management is guiding to higher FY26 costs stemming from October’s Budgets in France and UK, which will amount to c£45m extra costs (split France £14m and UK £31m), and is working on whether this can be fully mitigated or not. Also, net Interest costs are likely to be c£10m higher in FY26 due to lower net cash balances and slightly higher IFRS16 lease interest. We expect FY26 PBT consensus of £596m (£INVe £607.5m) to come back by c.10% depending on views on mitigation. Forecasts under review A downgrade on FY26 is disappointing short term. The key unknown is whether Government policy changes will delay the consumer recovery as the macro outlook was starting to improve. As per our previous note, ‘Recovered Earnings Potential’ (published 22/10/24), a recovered margin analysis suggested FY27E PBT forecast could be 37%-53% too low when a consumer recovery does come through and Kingfisher returns to more normalised margins. The shares are down 5% / up 21% over the last month / YTD and were valued on a CY25E PE of 11.9x before this morning’s downgrade.