Morningstar | Kingfisher Reports Mixed Results in Sales Update; One Kingfisher Plan on Track; Shares Undervalued
Narrow-moat Kingfisher’s fiscal 2019 second-quarter sales update revealed mixed results for the quarter, with strength in the U.K. segment, but struggles at Castorama (21% of 2018 sales) continued. Overall sales for the first half grew 1.2%, near our 2019 expectation of 2.2% growth. While the sales update did not provide explicit detail on margins, the firm said that it anticipates gross margins to expand despite near-term headwinds in the quarter as the One Kingfisher plan continues to be on track (in line with our assumption of a 40-basis-point improvement to 37.3%). As a result, we do not plan any material changes to our long-term profitability assumptions (average operating margin around 6%) or our GBX 342 fair value estimate ($9.57 for U.S. shares).The unusually harsh weather in the first quarter passed, and B&Q sales returned to growth after lagging since fiscal 2017. B&Q sales (30% of 2018 sales) grew 3.9% in the quarter (negative 2.2% for the first half), which keeps full-year sales growth potential near our 3% shortfall forecast at the brand. Additionally, Screwfix continued its double-digit growth trajectory, posting an 11.8% increase driven by the opening of 12 new outlets (we model 11.9% for the year). Overall, U.K. sales for the first half grew 1.3% despite weather challenges and a weak consumer backdrop (in part due to Brexit), tracking in line with our expectation of 1.5% growth for the year.
The struggles at Castorama, with first-half sales down 4.2%, can be attributed to lighter foot traffic and store closures related to One Kingfisher optimization. We expect the impact from store transformations to be fleeting and for the segment to reap the benefits in the second half, highlighted in our 0.7% sales decline for the year. International revenue growth increase 4% in the first half, trailing our 10% outlook for the fiscal year, but we plan to wait to adjust our expectations until we get more detail when full-year results are released on Sept. 19.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.