The B&Q and Screwfix owner proved profits can grow even when sales barely move, and the market rewarded it handsomely.
Kingfisher (LSE: KGF) shares surged 9% on Tuesday morning after the B&Q and Screwfix owner lifted its full-year profit guidance on the back of a stronger-than-expected first half, in which margin expansion rather than sales growth did the heavy lifting.
The retailer reported adjusted pre-tax profit up 9.9% to £404m for the six months to 31 July, helped by a 70-basis-point improvement in gross margin, disciplined cost control and a one-off £14m business rates refund. Strip out that refund and profit still rose 6.1%, even as like-for-like sales inched up just 0.3%.
Screwfix was the standout performer, with like-for-like sales up 5.6%, while the group's trade and e-commerce arms each grew 16% excluding Screwfix and marketplace sales jumped 42% to £372m. Kingfisher also gained market share in Poland and Spain. The soft spots were B&Q, where like-for-like sales fell 2.9%, and France, both hit by heatwaves that kept shoppers at home and delayed big-ticket building projects.
Adam Vettese, market analyst at eToro, said the rally showed investors had been 'waiting for permission to believe the self-help story', with Kingfisher proving that margin, mix and cost discipline can drive profit growth even when like-for-like sales barely move.
On the strength of the update, Kingfisher raised its full-year adjusted pre-tax profit guidance to between £595m and £635m, up from £565m-£625m, and lifted its free cash flow forecast. It held its interim dividend at 3.8p, continued its £300m share buyback, and posted adjusted earnings per share up 16% to 17.8p. The shares touched some of their highest levels since the US and Israel struck Iran, leaving scope for further gains should the wider macro backdrop improve.
This report is based on Kingfisher’s announcement and coverage by UK Investor Magazine. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full markets calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Tianlei Wu on Unsplash.
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