Fresh Lick of Managementspeak

Kingfisher's Extreme Makeover

It's got a whizzy strategy to deal with consumer wobbles, but investors have heard it all before.
As of 6:55 AM EDT
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DIY retailer Kingfisher Plc is starring its own extreme home makeover show. Too bad the big reveal has come as consumers are moving on. 

Chief Executive Officer Veronique Laury in January last year set out her strategic blueprint for the chain, which is saddled with too many big stores, a struggling French business and a consumer whose idea of DIY is to place a phone call to a professional themselves.

Initiatives include buying more products centrally rather than through Kingfisher's disparate divisions, and investing in electronic commerce. 

Investors have for years endured Kingfisher's succession of company improvement plans long on management speak and short on real progress. Now, at least, Laury seems to be making headway.

She said Wednesday that savings of 30 million pounds ($37.4 million) from cutting the cost of goods not for resale are bigger than the company expected. Meanwhile, the proportion of products bought centrally rose to 8 percent at the end of the year, and may reach 20 percent within 12 months.

Worrying Times

Kingfisher is at risk if consumers take fright from Brexit or the French elections

Source: Company Reports

Kingfisher said while the vote to leave the European Union has created uncertainty for the U.K. economic outlook, it hasn't seen any changes in consumer behavior so far. It said weaker same-store sales in the final quarter were not due to shoppers' retrenchment, but reflected comparisons to a stronger performance a year ago.

All in all, Kingfisher is sticking with its forecast of an extra 500 million pounds of earnings before interest and tax by Jan. 2021. The shares nevertheless fell more than 6 percent at one point on Wednesday on the darker outlook and as sales in both the U.K. and France missed estimates, making the company the worst performer in the FTSE 100 index.

The group has a habit of being knocked off course by external events, be it the weather or economic slowdowns. And given the concerns around the consumer in both Brexit Britain and election-focused France, risks its shoppers will stay home have risen. Big-ticket items, such as kitchens and bathrooms, are likely to be one of the first areas where Britons put off spending if faster inflation saps their spending power. 

Soaring Above

Kingfisher's outperformance looks under threat from a retrenching consumer

Source: Bloomberg

What's more, Kingfisher's U.K. fortunes are also linked to the housing market, both through DIY and its business that sells to tradesmen, Screwfix. The outlook here is nowhere near as rosy as it used to be. 

At the same time, the company is facing fresh competition from Australia's Bunnings, which recently opened its first U.K. store.

At least Kingfisher has a very strong balance sheet to help it weather any coming storms. Net cash rose to 641 million pounds as of Jan. 31 from 546 million pounds a year earlier.

Cash Comfort

Kingfisher's net cash has grown significantly over the past five years

Source: Company Reports

The shares have outperformed the FTSE All-Share General Retail index over the past year. Kingfisher now trades on about 13 times blended 2017 and 2018 earnings, a premium to UBS's estimate for the U.K. non-food retail sector of about 11.8 times. That rating is based on the premise that Kingfisher will achieve Laury's targets.

This was always going to be a tall order. And while the report card is good so far, a retrenching consumer could jeopardize delivery of the full benefits. The company's "One Kingfisher" plan should, in theory, help it battle tougher times and muscular competitors. But investors have heard this all before. Unless Kingfisher can swerve a consumer slowdown, it will need a lot more than a fresh lick of paint to keep its premium rating.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andrea Felsted in London at

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    Jennifer Ryan at

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