RESH fears for the high street surfaced today as Kingfisher reported a slump in sales that could suggest the lockdown do-it-yourself boom is over.
While the company behind B&Q says demand is resilient and it is on track to meet its £770m profit target for the year, hedge funds are aggressively betting against the company.
While CEO Thierry Garnier is confident enough about the future to launch a £300m share buyback, the mood music is uncomfortable.
Like-for-like sales, the most closely watched metric, fell 5.4% in the first quarter.
Garnier insists the company has “held a significant chunk of increased sales during the pandemic.”
Back in 2019, Kingfisher reported a profit crash that saw 65 stores closed and 3,000 jobs lost.
Kingfisher shares are up 5p today to 252p but they are down 30% this year. The stock is one of the most “shortened” on the FTSE 100 as hedge funds bet it will fall further.
Kingfisher said it was “aware of the heightened macroeconomic and geopolitical uncertainty that has emerged since the beginning of the year,” but added that it will seek to increase its market share.
Naysayers believe inflation, supply chain problems and a public desire for vacations and other experiences will hurt sales on the already ailing high street.
A note from City Broker Liberum today was brutal. it said.
“The macroeconomic outlook has deteriorated…stock prices have collapsed…consumer spending is at an all-time low. The erosion of real incomes and falling living standards are not temporary.”
She has “taken a knife” on retail earnings forecasts of 20% and warned against “inflated valuations”. It likes some retail stocks — Pets at Home and Superdry — but thinks ASOS, Primark-owner ABF and boohoo should be avoided.
Kingfisher says it’s “managing inflationary pressures effectively” and says both the home improvement and DIFM (do-it-for-me) sectors are doing well at the moment.
Garnier said: “Our product availability is now very close to ‘normal’ levels across all our banners and we continue to offer our customers value through our own exclusive brands and competitive prices.”
However, rising mortgage rates appear to be blaming consumer spending.
Garnier said last month that “home improvement isn’t a bad place to be in a crisis”. City analysts fear DIY projects will become luxuries that will be delayed as consumers fret over energy and food bills.
Markets.com’s Neil Wilson said: “While 3-year like-for-likes were good and earnings were in line with forecasts, UK like-for-likes were quite poor year-on-year and pointing indicates that DIY activity is declining at a rapid pace. Reserve rooms were prepared and garden offices built, now everyone is splurging on holidays and trips, there is not enough money left for renovation work. Kingfisher is a classic pandemic winner, having seen a big surge in demand and now finding its growth slowing. The key will be the health of the housing market going forward and that doesn’t look too promising.”