Kingfisher – the group behind DIY chains B&Q, Screwfix and Castorama – is testing the patience of its investors.
Over the last 12 months its shares have tumbled by a third to £2.40 amid growing fears that its ‘One Kingfisher’ transformation plan will fall short of its promises.
Kingfisher is more than halfway through the five-year project, aimed at eventually boosting the bottom line by a hefty £500million per year.
Kingfisher shares have tumbled 30 per cent from £3.52 to just £2.40 in the last 12 months
The ongoing process involves streamlining buying teams, introducing new ranges and improving the digital offer to cater for a growing number of people shopping for home improvement products online or using click-and-collect.
Management repeatedly insists that the plan is ‘on track’. But, as sales tumble, not everyone is convinced, with some now pressing for the retail stalwart to take radical action.
Activist investors are believed to be circling, issuing renewed calls for Kingfisher to sell off either its Screwfix brand (widely seen as the jewel in Kingfisher’s crown) or its struggling French business, Castorama.
Some shareholders have repeatedly called for Kingfisher to sell off either fast-growing Screwfix or the struggling French business Castorama
What’s more, the board is reportedly losing faith in group boss Veronique Laury, who was appointed in 2014 and masterminded the One Kingfisher plan.
The DIY lifer and former chief executive of Castorama is at risk of being let go unless her cost-cutting strategy begins to bear fruit.
Kingfisher declined to comment on the reports when they emerged earlier this year, but at the time a spokesman said: ‘We have a clear strategy to transform the business, have consistently hit the strategic milestones of our plan and laid foundations for further improvements that will become visible to customers this year.’
Veronique Laury (above) is the group boss of Kingfisher. She masterminded the turnaround
It added: ‘At a time when retailing is undergoing unprecedented change, Kingfisher remains a highly profitable business with a strong balance sheet. The focus of the board, the executive team and everyone in the business remains on the transformation.’
Broker notes from Stifel and Jefferies have added further fuel to the fire this week, ahead of Kingfisher’s scheduled full-year results presentation next Wednesday.
Analysts at Stifel questioned Laury’s strategy and urged the board to take action. The investment bank downgraded Kingfisher, pointing to bad planning and an out-of-date business model.
Jefferies, meanwhile, said its Buy recommendation for Kingfisher was ‘comfortably our worst recommendation of the past 15 months’.
‘The Buy was premised on the assumption that the disruption from the roll-out of ‘One Kingfisher’ had passed its peak, and that we were shifting from a period of earnings downgrades to one of sales growth and margin rebuild. We couldn’t have been more wrong,’ it said.
The FTSE-listed company, which is valued at about £5billion at employs more than 64,000 people, admitted its performance was held back last year by some poor execution of the One Kingfisher plan. It suffered from stock availability issues as it changed the ranges across its 1,200-or-so stores.
But events outside its control have not made life easy either.
In the UK, most major DIY chains – including Wickes and Homebase – have reported falling sales.
Shoppers are said to be spending less amid economic uncertainty
A drop in consumer confidence relating to economic uncertainty and the Brexit vote is said to have put the breaks on the housing market and deterred shoppers from making ‘big ticket’ purchases, like kitchens and bathrooms.
Market-leader B&Q has not been immune. In the first half of its financial year, the firm put a 2.5 per cent drop in sales at B&Q in part down to the difficult retail market and fewer people moving home.
B&Q’s third quarter sales then declined nearly 3 per cent too as these conditions showed no sign of letting up. There was even a concerning slowdown in growth at the group’s wonder kid, Screwfix.
Kingfisher has also complained of weak footfall at its Castorama chain in France, where half-year profits slumped 31 per cent and weighed heavily on the rest of the group. Third quarter sales here tumbled by nearly 8 per cent.
At the time, Laury said there is ‘no quick fix’ and reasserted her commitment to the plan.
‘Transformation on this scale is tough, and we are operating in a difficult retail environment. We face challenges and we are addressing them,’ she insisted.
Kingfisher’s Screwfix brand attracts more trade customers and is known for its digital prowess
The firm can’t be accused of total inaction.
At the end of last year, it decided to shut up shop in three countries – Russia, Spain and Portugal – so it could focus instead on stemming the decay in the UK and France. The move put more than 5,000 jobs at risk.
It changed its price strategy at B&Q – cutting the number of promos and deals in return for ‘everyday low prices’. And, as part of a wider reshuffle, the former boss of Screwfix, Graham Bell, was installed at the more challenged B&Q.
But Kingfisher needs to do more to reassure its shareholders, who will be awaiting next week’s results with trepidation.
According to Jefferies, the finals ‘won’t make for pretty reading.’
‘Investors may reward a more aggressive approach by the Kingfisher board,’ the investment bank said, adding that ‘only an extraordinary change in trading fortunes would prevent the need for a rethink’.
The City will seek reassurances beyond the group’s turnaround targets for the year being met, not to mention signs of improvement in the trickier markets – especially France.
And eagle-eyed investors, who currently enjoy a dividend yield of 4.4 per cent, will be watching out for any cuts here too.
At the last update, Markets.com analyst Neil Wilson said Laury sounds like a ‘broken record’.
‘She again reiterated that the transformation plan is working when there is evidence that it’s falling short,’ he argued.
Wilson also added his voice to the chorus calling for a Kingfisher break up.
‘We must again question whether the smarter move is to divest the French business and/or Screwfix. With activists circling, the French business could be hived off, as consistently argued in the past,’ he said.
No doubt the group will come up against fierce criticism again next Wednesday, especially if Laury beats the same old drum.
But if the steadfast boss is forced to depart before her vision is seen through to the end, the distraction of recruiting and installing yet another chief executive (as well as a new finance boss to replace outgoing Karen Witts) may risk sending the company into further disarray.
Investors could regret turning back and wonder if Laury’s was the best path all along.