Questor: B&Q owner is back on the front foot – can its recovery outlast the pandemic?

Questor share tip: After a failed attempt to cut costs by over-centralising, Kingfisher is getting things right, but DIY boom may be slowing

Richard Evans 19 September 2021 • 5:00am

Customers queue outside a B&Q store — Customers flocked to DIY stores such as B&Q during lockdown Credit: Jacob King/PA

Kingfisher is the retailer that forgot how to retail. Under its former chief executive it placed such emphasis on centralising decision making in an effort to cut costs that local managers lost the ability to stock the things their customers wanted at the prices they were prepared to pay.

That policy has been swept away by the current boss, Thierry Garnier, who took office in September 2019, and the various arms of Kingfisher, as well as local managers, have much more autonomy.

Shoppers are responding to this renewed focus on their needs. In the year to Jan 31 total sales grew by 6.8pc but sales growth then accelerated in the first quarter of the current financial year to 64.2pc relative to the same period last year.

We should hear on Tuesday, when interim results are due, if the 22pc growth pencilled in for the first half was achieved. To counter any thoughts that such figures merely reflect improvement across the entire sector as remote working prompted us to spend more on our homes, analysts at Royal Bank of Canada unearthed some revealing numbers.

“In the UK in June [Kingfisher’s] like-for-like sales were 5pc higher year-on-year, compared to Barclaycard data suggesting a 2pc rise for the market,” they said.

In other words, Kingfisher was growing two-and-a-half times faster than the sector as a whole: it was grabbing a bigger slice of a growing pie. The bank also detected evidence of outperformance in France.

We can’t be sure that the pie will continue to grow. But we can assess Kingfisher’s chances of maintaining its edge over rivals, or what the City sometimes calls “self-help”. RBC’s analysts said Kingfisher had an “above-average” opportunity in this respect.

We have already referred to the empowerment of local managers as a key step but the company is also making big strides online.

It has taken what we might call the “Tesco” approach to fulfilling online orders: customers receive the goods they order from their local store rather than from a central warehouse. This avoids enormous capital expenditure and the associated risks and enables click and collect to be offered alongside home deliveries. This is vital as 78pc of Kingfisher’s online orders were for click and collect last year.

Delivery from the company’s Screwfix arm, which is aimed at tradespeople, is being improved: if a plumber, say, is missing the right valve they can, thanks to a new service being introduced, order it from Screwfix and receive it within the hour.

The company is also trying to bolster the appeal of its own brands, such as Blooma garden products, because they make higher margins. Other initiatives include making better use of space in its largest shops, negotiating lower rents and experimenting with different formats, including, again to use the supermarket analogy, the equivalent of Tesco Express stores: you may be offered a smaller range but you can find what you need quickly and be in and out in no time.

These steps look right to analysts. “A strategy to reverse previous wrongs makes sense. Management are doing the right thing,” said Numis, the stockbroker.

Let’s return to the part that’s outside Kingfisher’s control, the question of whether the pie can continue to grow even as the firm takes a bigger slice.

Lockdown was a huge boost for DIY: our homes became our offices too and we wanted to feel more comfortable, so we spent money on them. We had to do it ourselves as tradespeople were not allowed to visit. DIY was among the few activities actually allowed.

The need for us to do up our homes won’t remain at lockdown levels but the pandemic did introduce swathes of younger people to the joys of DIY and we can hope that some at least will have caught the bug for life.

RBC said: “We think the outlook for home improvement has improved with people spending more time at home, more wear and tear, and people looking to engage more with DIY to improve their old and often energy-inefficient homes.”

The company has already told the City to expect a 10pc rise in pre-tax profits for the first half to £645m-£660m. Numis expects £930m for the full year, which would put the shares at a multiple of just 11 times earnings. In Questor’s view that prices in plenty of uncertainty about how long the DIY boom can last.

Questor says: hold

Ticker: KGF

Share price at close: 370.5p