Kingfisher PLC (LSE:KGF) shares seemed harshly hammered when the owner of B&Q and Screwfix posted full-year results in March, but until last week had bounced back by almost a third as investors seemed to gain confidence in its upcoming trading update.
The improvement was part of a broader UK retail rally, as backers seemed to cast aside worries over weak consumer confidence and rising costs.
The upcoming first-quarter update on Wednesday, 28 May, will test whether the DIY giant can justify the market’s improved enthusiasm, which has been lifted by wider industry data.
Unusually warm spring weather has sent homeowners "into a craze of refreshing homes and gardens", said analyst Susannah Streeter at Hargreaves Lansdown, which had boded well for Kingfisher in the short term.
April saw DIY sales enjoy a significant increase, with consumer spending boosted for outdoor-related products, in particular.
"Also, a surge in property completions due to the end of the stamp duty holiday is likely to have led to higher sales of products used in renovations. The problem is that the expected uplift could just be a flash in the pan for Kingfisher, rather than the start of a more sustained increase in sales."
The FTSE 100-listed group will report trading for the three months to April on Tuesday, where details on sales but not profits will be shared.
Group sales are forecast to fall 1.5% to £3.2 billion, while for like-for-like sales the City analyst consensus is for a year-on-year decline of 0.7% – the ninth consecutive drop before a return to growth is anticipated from the second quarter onwards.
Analysts at AJ Bell noted that the UK business showed signs of life at the end of last year, while Iberia and Poland both finished strongly. France, by contrast, remains the problem child.
Streeter noted that French consumer confidence has fallen to a three-month low, which won’t help efforts to turn around its struggling Castorama chain.
CEO Thierry Garnier has flagged £45 million in new cost pressures this year from wage and tax changes in the UK and France, and has guided for adjusted pre-tax profit between £480-540 million and free cash flow of £420-480 million – both lower than last year – with analysts currently expecting £512 million and £443 million, respectively.
With shares now trading near their 12-month high, the pressure will be on Garnier to narrow guidance or at least hold it steady.
"With some fears about the economic outlook lifting, investors will be hoping Kingfisher might be able to unveil an improved outlook for the rest of the year for the group, but the signs right now are not super-positive," said Streeter.