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Kingfisher (LSE: KGF) reported a 7% fall in full-year profit before tax (PBT) on Tuesday (25 March), and the share price promptly slumped 12% when the market opened.
The home improvement retailer saw sales dip 1.5% in the year to 31 January 2025, with bottom-line adjusted earnings per share (EPS) down 5.2%. But the owner of the UK’s B&Q and Screwfix, and Castorama and Brico Depot in France, reckoned its core categories were resilient.
Big-ticket spend on things like kitchens and bathrooms has been under pressure. CEO Thierry Garnier said: “Recent government budgets in the UK and France have raised costs for retailers and impacted consumer sentiment in the near term.”
Market share
The boss told us: “For the first time in over six years, we grew our market share in all key regions. We delivered profit and free cash flow in line with or ahead of our initial guidance, with strong delivery against our strategic objectives.”
Does that suggest we could be looking at one of the stronger players in an overall tough market? I’ve always believed an economic squeeze can provide one of the best times to separate the long-term winners from the also-rans.
It’s easy to look good when people are spending big and margins are fat all round. But it can be a lot harder to maintain efficiency and cash flow in a dip.
Kingfisher recorded free cash flow of £511m in the year, down just 0.5% from the previous year’s £514m. That’s good enough for me. And the board held the total dividend at 12.4p per share, for a 4.4% yield on the previous day’s close.
The year ahead
When a sector is under pressure, I look to liquidity. And that cash flow figure is a decent start. But the company expects to see a dip in the 2025-26 year, to around £420m to £480m. It does, though, aim to get it back above £500m annually from 2026-27.
The company also launched a new £300m share buyback, which shows confidence under pressure. I’m always in two minds over buybacks when there’s net debt on the books. And Kingfisher’s year-end net debt stood at £2bn. Still, it’s modest compared to £12.8bn in sales.
The board expects adjusted PBT between £480m to £540m this year. So it seems we’re in for a tighter time. Is management, with its new share buyback, trying to keep investors sweet before things pick up again? I’m getting that feeling.
The investment case
Analysts expect EPS to grow in the current year and beyond. And with the mid-point of that suggested PBT range being slightly ahead of the FY figure just reported, they might be right. But it’s only 1% up and the range is wide.
That profit uncertainty could be the biggest risk at the moment, and it could throw forecasts off. Do projected price-to-earnings (P/E) multiples of around 12 to13 provide enough safety margin? If Kingfisher maintains its dividends, they might. We could see share price weakness ahead, but I rate it as one for investors looking past today’s economy to consider.
