“B&Q and Screwfix owner Kingfisher plc (LON:KGF) has again nailed our insatiable demand for DIY. The race for more space in our homes has kept demand booming for building and decorating materials. The working from home revolution has been a seismic change and has led so many people to re-evaluate the way they live. Doing deals from the kitchen table just isn’t going to cut it longer term, so they have been eyeing up extensions, renovations and outdoor offices instead.
Q2 2021 hedge fund letters, conferences and more
Kingfisher's Sales Were Up 22%
Like for like sales were up 22% for the half year – that’s partly because this time last year there were still significant store closures in certain regions – but there has been resilient demand across all markets. France has turned from a weak to a bright spot, with retail profit more than doubling compared to the same period last year, with the effort to restore the discount DNA to the Bricot Depot chain clearly reaping rewards.
In the third quarter, demand overall dropped back a little, by 0.6%, with the bad weather putting people off starting outdoor projects and making purchases, but compared to 2019 the DIY craze shows little sign of waning with like for like sales up 16%
Supply chain issues have still caused headaches, particularly amid such high demand, but these are cracks in its slick operating model the company has been busy filling. Although higher shipping costs and bottlenecks at major ports don’t look like they are going to ease any time soon and will remain a challenge, so far the company has navigated the shortage of raw materials and drivers adeptly. Prices are going up more steeply than usual but so far its managed to limit inflationary pressures on the business, though concerns will remain over whether it will be able to continue to do so, if the supply chain crunch continues well into next year. With absenteeism rates going up in Vietnam and China the company says it also remains mindful of continued uncertainty relating to Covid.
Nevertheless it doesn’t expect sales to dwindle as much as previously thought for the second half of the year – expecting a drop off of between 7 and 3 % compared to a fall of 5 to 15% - which when compared to the same period in 2019 represents a sales jump of around 9 to 13%.
The £300 million share buy-back scheme is also a show of confidence in the company’s outlook and the expectation that strong cash generation will continue. If the company is hit with a splattering of more supply chain disruption, it has shown it has the resilience built into its model to repair the worst of the damage."
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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