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Is Kingfisher’s share price rally over?

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Shares in the DIY retailer Kingfisher (LSE: KGF) – which operates under the B&Q and Screwfix brands in the UK, and Castorama and Brico Dépôt in France and elsewhere – have seen a significant rally since the start of the Covid-19 pandemic in March.

As many people have been forced to work from home due to Coronavirus, this has enabled consumers to rediscover their homes and find ways to improve it. Consumers are also becoming comfortable with ordering home improvement items online through click and collect. This DIY boom has kickstarted Kingfisher’s e-commerce strategy, where its physical stores are at the centre of it.

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Taking charge in September 2019, the new CEO and veteran of French retailer Carrefour, Thierry Garnier, said that although its stores are useful for showroom and advice purposes, they are central to online sales.

He said that warehouses are unable to support the quick delivery that consumers demand from its click and collect service. E-commerce sales have increased from 7% to 19% of total group 19/20 annual sales.

‘Powered by Kingfisher’

Garnier replaces former CEO Veronique Laury, who stepped down after her ‘One Kingfisher’ strategic plan failed and the company revealed a significant fall in annual profits as well as store closures. Laury launched the One Kingfisher programme in 2016, with the aim to boost annual profits by £500 million by the end of 2020-21. Laury’s failure to deliver has resulted in her successor, Garnier, to implement his own ‘Powered by Kingfisher’ plan in June 2020.

Announced at the full year 19/20 results, the ‘Powered by Kingfisher’ strategic plan will see initiatives such as the company roll-out its own exclusive brands, a reorganisation of its commercial operating model as well as accelerated e-commerce plans with a focus on fulfilment from its stores.

Coronavirus measures

While there is no doubt that Covid-19 has fuelled Kingfisher’s share price rally, the shares could offer further growth. The company was quick to react during the pandemic. The dividend was suspended, cost measures were introduced, and additional liquidity arrangements were implemented above its existing cash position.

Although it is still early days to assess the impact of Garnier’s strategic plan and uncertainty over Coronavirus remains, I am optimistic about the long-term prospects for Kingfisher.

Encouraging outlook

Should many companies continue to let their employees work from home post Covid-19, even for a few days a week, Kingfisher will still continue to benefit from the DIY boom. One of the lasting consequences of Coronavirus is the secular shift towards online shopping. Kingfisher’s increased focus on its e-commerce strategy should also benefit from this and provide it with a competitive advantage over its peers.

Factors such as an increase in unemployment and weak economic outlook could derail this growth in the short term. While third-party brands reduces profitability, Kingfisher is adopting more of its own brands, which should enable it to react quickly to consumer trends, improve its margins and at some point reinstate its dividend.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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