Kingfisher suffers post-lockdown DIY hangover but there’s a remedy at hand for investors

A strategic update full of guff obscures an improvement plan that could bring better numbers next year

Kingfisher has a plan to reinvigorate UK store profile (PA)

Kingfisher is finding the DIY market tougher than when customers were confined to their homes by Covid restrictions.

The owner of B&Q and Screwfix has just reported an ugly 40 per cent decline in pre-tax profits for the year ending 31 January. It’s not just big tech that is suffering a post-pandemic hangover.

The retail group also recorded a thumping £555m cash decline – understandably, something investors tend to worry about – while net debt leapt from £1.6bn to £2.2bn.

Excluding new openings, sales fell by 2 per cent; that number looks even worse when considering the impact of inflation, which means Kingfisher will have been selling at higher prices than during the previous year.

To polish its announcement, the group put out a bunch of “adjusted” numbers – something which is becoming a habit among big corporates and really ought to be done away with. What does “adjusted” even mean? We’ll concentrate on the actual numbers, thanks.

There was also a veritable blizzard of strategic announcements. Yes, things have got harder post-pandemic but look, we’re doing this! And this!

As retail analyst Nick Bubb archly noted, some of the group’s strategic targets are “a bit lame”. Take for example: “Sales to grow ahead of our markets.” Or this one: “Adjusted pre-tax profit to grow faster than sales.” If it doesn’t, can one just adjust the adjustment?

The Anglo-French retailer tells us it is “confident in growth and cash-generation opportunity”. Honestly, who writes this stuff? The business might be all about DIY but sometimes it pays to employ a little help because those with money to invest aren’t going to be impressed with that.

Thing is, underneath all this guff there is a reasonably good story to tell.

That cash decline and debt increase? There is a slide in the analyst presentation that discusses the former, which is as clear as a muddy pool; it talks about inventory and inflation. Suffice to say that Kingfisher is investing a lot of money in expansion, taking the trade-focused Screwfix to France, adding new stores to the UK, etc.

As for sales, it is worth noting that they are more than 15 per cent ahead of where they were pre-pandemic. While inflation has juiced that number, it is still fair to say the company is doing tolerably well on a three-year trend, if one takes out the pandemic blip.

Working in Kingfisher’s favour is that its customers tend to be homeowners with money to spend on home improvements. This demographic has suffered relatively less from the world’s inflationary surge than the poor. The rate of inflation incurred by the well-off is somewhat lower than the headline number. This group of consumers also saved a lot of cash during the pandemic and still have the capacity to spend some on home improvements.

Kingfisher ought to be able to capitalise on that. It has recently done well with home insulation products (UK) and even water insulation products (France, where droughts have been an issue).

It could do with performing a bit of DIY on how it tells its story. But there are reasons for thinking the company is capable of shrugging off its post-Covid sluggishness and building something better.