DIY colossus Kingfisher (LSE: KGF) edged to its highest since June 2014 in Tuesday trade as the firm unveiled its latest trading update. Today’s move above the 380p mark continues the retailer’s stellar run of form, Kingfisher finally erasing the losses endured after June’s Brexit referendum.
The company saw like-for-like sales rise 3.3% during February-July, to £5.75bn, it advised today, a result that drove underlying pre-tax profit 13.5% higher to £436m.
Spectacular sales growth at its Screwfix fascias gave particular reason for cheer, with total sales here leaping 14.4% on a like-for-like basis during the first half. This pushed total underlying sales from the UK and Ireland 6.7% higher, to £2.61bn, with like-for-like takings at Kingfisher’s flagship B&Q brand also rising 4.6% in the period.
There was a fly in the ointment however, with underlying sales in Kingfisher’s other key marketplace of France dipping 1.6% during February-July because of wet weather and industrial action in the second quarter.
Still, the screw and shed specialist’s ability to dodge the worst of the Brexit fallout has rightly dominated the headlines, as has the success of Kingfisher’s ongoing transformation strategy. The business has now shuttered 52 of the 65 B&Q stores scheduled for closure, and costs related to its five-year restructuring plan are expected to come in lower than expected for fiscal 2017.
While today’s update is certainly encouraging, I believe investors should remain cautious on Kingfisher’s revenues outlook in the months and years ahead as retail industry data remains patchy at best.
So while the firm’s forward P/E rating of 16.2 times may be reasonable on paper, I believe Kingfisher isn’t yet out of the woods and won’t be taking the plunge myself just yet.
French toast?
Fashion play French Connection (LSE: FCCN) hasn’t fared so well in Tuesday’s session however, a disappointing trading update providing fresh fuel for existing investor jitters. The stock was last down 6% on the day.
French Connection advised that more store closures pushed retail revenues 8.7% lower between February and July, to £69.2m. This kept French Connection firmly in the red with pre-tax losses of £7.9m, matching the result of the corresponding 2015 period and a result that chairman and CEO Stephen Marks described as “disappointing.”
The clothing seller’s turnaround strategy is still failing to make a tangible difference to the bottom line. And marketplace problems across the retail sector look set to keep French Connection under pressure — the firm noted “tough trading conditions on the UK High Street” during the first half, and that “we have continued to see this trend in retail in the early part of the second half of the year.”
City analysts aren’t expecting French Connection to bounce back into the black any time soon, given the huge amount of work the firm still has to achieve and intense competitive pressures. I believe investors should continue to steer well clear at the present time.
