Kingfisher at ONE with plan in Q3

Kingfisher's weak sales in France show no sign of ending, thankfully, the UK is perking up

France in-line

Kingfisher’s French business, once among its most profitable, has been fading into burdensome decline for several years. So a retreat of underlying sales there of 4.1% over twelve weeks to the end of October, the same as in the first half, is negative, but no shock. Also underpinning sentiment on Tuesday—shares are down three pence as I write— is that a lid has been kept on business disruption from the ONE Kingfisher 5-year plan for another quarter. The drive to unify product ranges, IT and costs wrought inevitable mess, knocking sales and the stock in earlier this quarter.

ONE on track

Confidence in the ability of Europe’s largest DIY retailer to make good on the programme and deliver a targeted £500m profit boost is improving. Kingfisher shares rose 10% between September and earlier this month before retreating just moderately. Benefits from rationalisation are beginning to show. For instance, it is no mean feat that a winning formula has been patched together in an uncertain UK/Ireland market, led by Screwfix (with a little help from inflation). And when negative B&Q effects, like store closures and exceptional trading in Q3 16/17, come out of the equation, UK/Ireland can even be expected to strengthen further. Better-than-forecast UK/Ireland trading keeps a small uplift relative to underlying earnings expectations in view for the current year.

Polish backstop

If we’re correct, UK/Ireland could supplement, and, down the line, offer countercyclical support to Kingfisher’s real growth market, Poland. No need for tough comparable sales rationalisations or seasonal and non-seasonal distinctions there; the Polish DIY market is just growing. As the source of around 10% of Kingfisher’s revenue, Poland is a backstop should challenges elsewhere flare up alarmingly again, and another potential contributor to above-plan growth by 2020.

Another tough year ahead

But Kingfisher isn’t quite fixed yet, and residual hopes for completion ahead of schedule have been dashed for good this year. Whilst the group would have frayed more severely without the steadfast optimism of CEO Véronique Laury, her confidence has not smoothed the path towards ONE Kingfisher for the first two years, and year three is set to be just as tough. Additionally, UK/Ireland recovery will be tested further next year, leaving ample scope for sceptical investors to question Kingfisher’s viability as a single entity again. A 14% share price decline this year reflects the realisation that there would be no quick wins for investors, even if a break-up scenario gained traction - again.

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