Several brokers have cut their target price for FTSE 100 home improvement retailer Kingfisher PLC (LON:KGF) after the hot summer period failed to offset an underlying decline in the group’s fortunes.
At Deutsche Bank, which cut its target to 305p from 315p, analysts said that despite sales in the second quarter being “a touch ahead” of expectations, in particular at B&Q and Brico Depot, the recovery “only just compensated for the decline in the early Spring months and for the first half [Kingfisher’s] total sales declined”.
READ: Hot weather boosts sales at B&Q owner Kingfisher in second quarter
They added that moving into the autumn months, the continued decline in the group’s core DIY spending would become “more significant”, adding that it expected gross margins for the first half of the year to decline by 40 base percentage points.
Meanwhile, Swiss bank UBS also trimmed its target for Kingfisher to 260p from 265p, saying that “the issues at Brico, and an ex-weather trend rate at B&Q of -3%, plus Brexit risks, suggest that "business as usual" profits are still going backwards, offsetting the planned gains from ONE Kingfisher”.
Analysts also estimated that the firm’s interim pre-tax profits could decline by 14% to £380mln before transformation costs and exceptionals, a decline that is “unexpected, especially as we are at the midpoint of the ONE Kingfisher programme”.
Not wanting to be left out, RBC’s analysts also cut their target to 300p from 330p while also lowering their pre-tax profit forecasts for the 2019/2020 financial year by 4% due to “weakness for the Castorama brand, particularly in France”.
In its results for the second quarter released on 16 August, Kingfisher reported a 3.4% increase in sales to £3.25bn for the quarter ended July 31. On a like-for-like basis, sales grew 1.6%, rebounding from a 4.0% decline in the first quarter when snowfall and icy temperatures in February and March kept customers away.
However, at the time shares fell as analysts quickly pointed out that the sales recovery relied very heavily on the hot weather conditions in the UK over the period.
In early-morning trading Friday, Kingfisher shares were down 1.6% at 270p.