The coronavirus and stock market crash is survivable. If you don’t believe me, take a look at DIY retail group Kingfisher (LSE: KGF). Its share price is up 5% today after reporting a surge in sales following the easing of the lockdown across Europe.
After months of being stuck at home, people clearly have long to-do lists. Many are heading off to Kingfisher’s retail outlets such as B&Q in the UK, and Castorama in France and Poland. I’m impressed by the scale of the sales recovery, with like-for-likes up 21.8% in the second quarter to 13 June.
Sales have grown more than 25% since the second week of May, a huge relief after the 74% drop in early April. No wonder investors are piling into the Kingfisher share price, which is continuing its impressive recovery from the stock market crash. That’s despite management previously announcing it won’t be paying a full-year dividend.
FTSE recovery play
Today’s final results for the year to 31 January showed a 0.8% drop in full-year sales to £11.5m. Statutory pre-tax profits fell 65.7% to £103m, hit by £441m of exceptional items. These included £118m on store impairments, due to reduced freehold valuations, while its exit from Russia cost a further £130m. That was before the stock market crash though.
Investors are looking to see what’s happening post-lockdown. Healthy sales growth in May continued into June, with its B&Q and Castorama brands enjoying “exceptional demand.”
Kingfisher closed stores at the height of the pandemic but click & collect and home delivery services performed well. Online sales rose sharply with e-commerce growing fourfold since mid-March. This shift could bear long-term fruit as well if more tradespeople and DIY-ers get used to ordering on the web.
I’m delighted to see the dramatic snapback in customer demand. Hopefully, other retail stocks will also recover strongly from the stock market crash.
Stock market crash opportunity
Kingfisher actually fell out of the FTSE 100 in March, as its share price almost halved during the early stages of the crisis. Yet it’s recovered faster than most stocks on the index, even before today. It’s now up almost 65%, measured over three months.
Of course, the ideal time to buy this stock was at the height of the market crash. But if you didn’t manage that, there’s still an opportunity here. I’m not sure how much faith we can put in traditional valuation metrics, such as the price/earnings ratio, but this suggests Kingfisher is still good value at 10.57 times earnings.
Kingfisher is making a welcome shift away from cumbersome, large-scale initiatives, and aims to be more retail-led rather than product-led. This should make the group more efficient, cutting clearance and logistics costs. This overhaul is necessary, as the Kingfisher share price was in steady decline for five years before the stock market crash.
As shoppers return, investors will follow. I’d buy it.
