Kingfisher to raise dividend and buy back shares after profit surge

Kingfisher PLC updates

DIY retailer Kingfisher has increased its interim dividend by almost 40 per cent and will buy back £300m of its shares after profits surged, although its shares fell on Tuesday amid doubt about how long the pandemic-driven uplift could continue.

The UK-based group, which also operates in France, Spain and eastern Europe, has been a winner from the coronavirus pandemic as repeated lockdowns and the shift to working from home prompted consumers to spend more on their homes and gardens.

Although that pattern is expected to shift with the reopening of the economy, Kingfisher on Tuesday said an expected decline in sales in the second half of its financial year would be smaller than feared.

It forecast full-year sales would decline by no more than 7 per cent compared with a previous scenario of a drop of between 5 per cent and 15 per cent. The group added that adjusted pre-tax profit for the year would be between £910m and £950m, against analysts’ forecasts of about £912m.

So far in the third quarter, sales have been down 0.6 per cent from the same period last year, but up 16 per cent on pre-pandemic levels.

“Our industry is benefiting from new trends that we believe will be supportive over the long term,” said chief executive Thierry Garnier, adding that increased interest from so-called generation rent was particularly notable.

“In the medium term we are confident that new trends such as more working from home will have material consequences for our business,” he said. “Our survey evidence shows more interest in starting DIY for the first time and [people aged 18 to 30] are telling us they are enjoying it and learning.”

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He said the business would continue to face pressure in the second half of the year from increased transport costs and raw material inflation, particularly wood. However, the group’s peak selling season for this year has passed and Garnier said it was proactively planning for next year.

Some price rises were likely, he acknowledged, “but we are a mass-market retailer and our first priority is to keep pricing competitive”.

Pre-tax profit for the first half of the group’s financial year, which ran to July 31, was £677m, up 70 per cent on the same period a year ago, when most of its stores were either required to close or chose to do so for a short period during the first wave of the pandemic.

Kingfisher said ecommerce sales were up 21 per cent in the first half and had more than tripled since the start of the pandemic to account for about a fifth of the total. Its interim dividend was 3.8p a share, up from 2.75p last year and 3.33p the year before.

Analysts at Jefferies said the buyback, which it had not been expected to start until next year, would make the group’s balance sheet more efficient. Its net debt is 0.5 times its underlying earnings, a relatively light ratio for such a cash-generative group.

But shares in the company, which have risen 30 per cent over the past year, were down almost 5 per cent in early trade on Tuesday in London.

Kate Calvert, retail analyst at Investec, said the upgrade to full-year forecasts was modest given the business momentum and that there was “an increasing feeling that this is as good as it gets”.

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She predicted that as demand returned to more normal levels, Kingfisher would struggle to maintain margins, which were more than a percentage point higher year on year in the first half.


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