Proactive Investors - Kingfisher PLC (LON: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.
Analysts are dovish about the retailer’s expected turnover and pre-tax profit figures this year, 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 downgraded their 2023 revenue estimates for the home improvement business.
Their old estimate was that Kingfisher would generate over £13 billion in revenue for the year, slightly less than last year. Now analysts at the bank estimate that the group will generate slightly less than that in overall turnover, in the region of £12.99 billion.
UBS analysts also estimate lower gross profit and earnings this year for the home improvement company, 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”.
These include a reversal of demand and a poor housing outlook in the UK market.
UBS analysts cut their quarterly expectations after Wickes reported sales were "moderately down" on last year and Travis Perkins (LSE:LON:TPK) highlighted 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 more than one-third, or 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.
Mrowka is the market leader, on a store count basis, in Poland with 356 stores, followed by Bricomarche and then Kingfisher’s Castorama which had 99 stores in operation as of 23 September.
Castorama had an 11.5% share of the total market in Poland on a store basis and grew its store count 1% in the quarter up to September, stronger versus the market overall in which the total store count declined slightly by 0.6%.
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.