Kingfisher PLC (LSE:KGF), the owner of B&Q, Screwfix and TradePoint, is due to report its financial results for the third quarter of 2023 on Wednesday 22 November, with its shares having recently hit a 52-week low.
Analysts are cautious about the retailer’s expected turnover and pre-tax profit figures, citing a slump in credit card spending this year alongside an inflationary trend.
The global home improvement conglomerate faces a reversal in UK demand, stiff competition in another of its key markets, France, and challenging conditions in Poland.
Analysts at investment bank UBS have trimmed their 2023 revenue estimates from just over £13 billion to £12.99 billion for the year to January 2024, compared to £13.06 billion last time and £13.18 billion the year before that.
The UBS analysts forecast lower gross profit and earnings this year but have not materially changed their earnings per share estimate for 2023, lifting the EPS estimate slightly to 19.8 pence for the year.
They said in a research note on Wednesday, ahead of the release of Kingfisher’s quarterly earnings figures, that all of its key markets are “facing challenging environments, with tough conditions in the UK” due to a reversal of demand and a poor housing outlook.
Lower expectations reflected read-across from Wickes, which reported sales were "moderately down" on last year, and Travis Perkins (LSE:TPK) recently highlighting a "slowdown in new build housing" and domestic repairs.
Kingfisher also faces stiff competition in France, where analysts say rival Leroy Merlin, the owner of Bricolage, is “back to strength”, as well as being confronted with a “challenging outlook” in Poland.
France accounted for 34% of Kingfisher’s market sales in 2022, while Poland comprised 13%.
UBS’s DIY trackers for France and Poland suggest that French discount chain GiFi is the staunch market leader in France with 532 stores, ahead of Bricolage in terms of the number of stores.
Kingfisher’s Brico Dépôt and Castorama businesses had a 6% and 5% share of France’s total home improvement market, respectively, in terms of the number of total stores in the country as of 23 September, UBS said.
The group’s retail profit margin for France still remains below its peak of 7%, analysts said, estimating that in the medium term, the company as a whole could achieve a profit-before-tax margin of about 5% as its online business strengthens but this is less than the historical range of 6-8%.
Analysts estimate that an inventory “unwind” at the group will create a working capital benefit of £243 million as it shifts old stock, and they think Kingfisher will prioritise shareholder returns and capital expenditure by rolling out more stores in France and Poland.
UBS reiterated its 'sell' rating for Kingfisher, lowering its price target, where it would estimate fair value in the company's shares, to 205p per share.