# Kingfisher group sales and gross margin down

- Link: https://www.directorstalkinterviews.com/kingfisher-group-sales-and-gross-margin-down/4121111252
- Published: 2023-03-21T08:07:06+00:00
- Author: Katherine Hargreaves

**[Kingfisher plc](https://www.directorstalkinterviews.com/ftse-company/kingfisher-plc/kgf.l)**(
LON:KGF) has announced its final results for the year ended 31 January 2023.

![2023 03 21 (KGF)](https://www.directorstalkinterviews.com/wp-content/uploads/2023/
03/2023-03-21.png "Kingfisher group sales and gross margin down (KGF)")

**Highlights**

·      **A year of solid execution**

–      FY performance in line with our expectations & guidance, against strong prior
year comparatives

–      Total sales -0.7% in constant currency and LFL -2.1% (3-year LFL* +15.6%)

–      Sales outperforming home improvement industry growth, with 3-year total sales
CAGR^((3)) of +5.9% vs market CAGR^((4)) of +4.9%

–      Total e-commerce sales* -9.1% (3-year growth +146%), with growth of +3.7%
in H2. E-commerce sales penetration* of 16.3% (FY 19/20: 7.9%)

–      Adjusted pre-tax profit (PBT) -20% to £758m (+39% vs FY 19/20). Statutory
PBT -39.3% to £611m

–      Exceeded target for 1.5°C science-based scope 1 and 2 carbon reduction (-
52.7% vs FY 16/17)

–      Proposed total dividend maintained at 12.40p per share, in line with FY 21/
22

·      **Multiple profitable growth opportunities being pursued at pace**

–      Ambition of 25% e-commerce sales penetration. Successful e-commerce marketplace
launches in the UK and Iberia*; preparing roll-out in Poland and France*

–      Opened first 5 Screwfix stores in France; up to 25 new stores planned in 
FY 23/24

–      Record 82 Screwfix store openings in the UK & Ireland*; up to 60 new stores
planned in FY 23/24

–      Targeting up to 80 medium-box and compact store openings in Castorama Poland
over 5 years

–      Continued focus on increasing trade penetration across all banners. TradePoint(
in B&Q) 3-year LFL sales growth of +31.5%, outperforming core B&Q and reaching 22%
sales penetration

·      **Well positioned to navigate FY 23/24**

–      Resilient underlying sales trends in the new year (February 23/24 LFL sales
^((5)): +0.5%)

–      Maintaining strong price indices in our key markets, and continuing to deliver
value to customers

–      Own exclusive brands (45% of sales) providing customer benefits and support
to gross margin %

–      Effectively managing inflation, costs and inventory levels

–      Comfortable with current consensus of sell-side analyst estimates for FY 
23/24 adjusted pre-tax profit^((4)), with expectation of >£500m free cash flow for
the year

·      **Announcing new medium-term financial priorities; confident in growth and
cash generation opportunity**

> **Thierry Garnier, Chief Executive Officer, said:**
> “Across all our markets, sales have remained resilient in both DIY and DIFM/trade
> channels, with like-for-like sales 15.6% ahead of pre-pandemic levels. We have
> maintained a sharp focus on pricing to deliver value to our customers during this
> challenging period for household finances, while at the same time managing our
> cost inflation pressures effectively. Strong supply chain management has ensured
> good product availability and a firm grip on our inventories.
> “We continue to execute our strategy at pace and invest in our multiple growth
> opportunities. We are proud of the progress our teams have made during the year,
> and since the start of our ‘Powered by Kingfisher’ strategy. Our e-commerce sales
> have increased by 146% over the last three years and we have enhanced our online
> proposition with the launch of marketplace offerings in the UK, Spain and Portugal,
> which are all performing strongly. Across the Group, we are strengthening our 
> proposition for trade customers, building on the success of B&Q’s TradePoint and
> the accelerated expansion of Screwfix. Whilst it’s still early days for Screwfix’s
> ambitions in France, we are happy with the results of the first few months of 
> operations and planning for up to 25 more store openings this year. We are also
> building on our leadership position in Poland and the attractive potential of 
> this market by opening seven more Castorama stores in 2023.
> “We remain confident in both the growth of our industry, and in our strategic 
> priorities supporting growth ahead of our markets. And we are announcing today
> our new medium-term financial priorities, focused on growth, cash generation and
> higher returns to shareholders.”

**FY 22/23 Group results**

·      **Sales** down 0.7% in constant currency, reflecting strong prior year comparatives
linked to high demand for home improvement products. Resilient sales across both
retail and trade channels

·      **LFL sales** down 2.1% and corresponding 3-year LFL up 15.6%

–      Double-digit 3-year LFL sales growth across all banners

–      Positive 1-year growth in Poland, Iberia and Romania; resilient performance
in France; strong prior year comparatives for the UK & Ireland

·      **Q4 22/23** LFL sales flat, and up 13.7% on a 3-year basis, broadly consistent
with the trend from Q3 22/23 (LFL +0.2%; 3-year LFL +15.3%)

·      **Gross margin %** down 70 basis points to 36.7% (FY 21/22: 37.4%; FY 19/
20: 37.0%), reflecting banner & category mix, and the impact in H1 of ‘normalised’
promotional activity and one-off logistics spend to secure/manage seasonal and ‘
buffer’ stock

·      **Retail profit** down 19.2% in constant currency to £923m (FY 21/22: £1,148m;
FY 19/20: £786m), largely reflecting very strong prior year comparatives in the 
UK & Ireland and France

·      **Statutory pre-tax profit** down 39.3% to £611m (FY 21/22: £1,007m; FY 19/
20: £103m), reflecting lower operating profit, including the impact of impairments
following significant increases in discount rates and revised future projections

·      **Adjusted pre-tax profit** down 20.2% to £758m (FY 21/22: £949m; FY 19/20:
£544m), reflecting lower retail profit, partially offset by lower finance costs

·      **Free cash flow** of £(40)m, down £425m (FY 21/22: £385m; FY 19/20: £191m),
reflecting lower EBITDA* and one-off working capital outflow from completion of 
inventory rebuild programme

·      **Net decrease in cash** of £555m (FY 21/22: £237m), largely reflecting lower
free cash flow, and £583m of outflows in relation to ordinary dividends and share
buybacks

·      **Net debt** up to £2,274m (31 January 2022: £1,572m), including £2,444m 
of lease liabilities under IFRS 16, reflecting the net decrease in cash. **Net debt
to EBITDA** of 1.6x (31 January 2022: 1.0x)

·      **Total dividend** per share proposed of 12.40p (FY 21/22: 12.40p)

**Outlook for FY 23/24**

·      Current trading:

–      February 23/24 total sales +1.9% (LFL sales +0.5%)^((5))

–      Underlying sales trends remain resilient, with ‘big-ticket’ sales broadly
flat YoY

–      Expect some impact in March from adverse weather conditions and strong comparative
in Poland

·      Well positioned to navigate FY 23/24:

–      Targeting further market share growth

–      Sales impact of c.+1.5% from net space growth, largely from Screwfix and 
Castorama Poland

–      Committed to active and responsive management of operating costs* to partially
offset higher staff, technology and energy costs YoY

–      Expect P&L investment of c.£40m in relation to our new businesses, including
Screwfix France

·      Based on the above, we are comfortable with the current consensus of sell-
side analyst estimates for FY 23/24 adjusted pre-tax profit^((6))

·      Expect >£500m free cash flow for the year, supported by the unwind of working
capital outflows in the prior year

·      Intention to announce a new share buyback programme following completion 
of the existing programme this year; subject to our capital allocation framework
and market conditions

**Medium-term financial and capital allocation priorities**

·      Kingfisher operates in attractive markets, with new positive longer-term 
trends (such as more working from home and energy efficiency renovations) providing
further support to market growth potential

·      **Financial priorities:** Building on our industry’s attractive growth profile,
the Group’s medium-term financial priorities are:

–      **Sales to grow ahead of our markets:**

§ LFL sales growth driven by our strategic focus areas including e-commerce and 
marketplace, OEB, trade penetration; and

§ Sales impact of c.+1.5% to +2.5% from annual net space growth over the medium 
term, primarily driven by Screwfix and Castorama Poland

–      **Adjusted pre-tax profit to grow faster than sales:**

§ Supported by scale benefits, higher margin initiatives, operating cost leverage,
and multi-year operating cost reduction opportunities

–      **Strong cash generation to drive growth investment and shareholder returns:**

§ Free cash flow of c.£400m to £500m in FY 24/25, followed by >£500m per annum from
FY 25/26, supported by profit growth and ongoing inventory self-help measures

·      **Capital allocation:** Our capital allocation priorities are as follows:

–      Organic and ‘bolt-on’ inorganic growth opportunities that accelerate our 
strategy. Target gross capex of c.3.0-3.5% of total sales per annum, on average,
focussed on delivering against attractive organic growth opportunities

–      Maintain an efficient capital structure, with a more prudent position in 
times of macroeconomic uncertainty; maximum net leverage (net debt to EBITDA) of
2.0x over medium term

–      Progressive, sustainable dividend policy, with target dividend cover* of 
2.25-2.75x

–      Surplus capital to be returned via share buybacks or special dividends

**Executing strongly against our strategic priorities**

·      **Grow by building on our different banners:**

–      Record 82 Screwfix store openings in the UK & Ireland for a total of 872 
stores; up to 60 new stores planned in FY 23/24

–      First 5 Screwfix stores opened in France; up to 25 new stores planned in 
FY 23/24

–      7 new Castorama stores opened in Poland; targeting up to 80 medium-box and
compact store openings in Poland over the next 5 years

–      First two B&Q franchise stores in the Middle East have opened

·      **Accelerate e-commerce through speed and choice:**

–      E-commerce sales penetration of 16.3%, twice the level of FY 19/20. Ambition
of 25% sales penetration

–      91% of all e-commerce orders picked in store

–      More options for click & collect (C&C) through roll-out of lockers in Poland;
being tested at B&Q

–      Adopting more last-mile delivery options, including successful roll-out of
one-hour delivery (Screwfix _Sprint_) and optimised carrier management (being tested
at B&Q and in France)

–      Improved e-commerce order management through use of ‘digital hub’ stores 
and better visibility of available SKUs*

–      New e-commerce marketplace model successfully launched at B&Q, Spain and 
Portugal (reaching 24% marketplace participation* at B&Q in February 2023, after
just 11 months); preparing roll-out of marketplaces in Poland and France

·      **Build a data-led customer experience:**

–      Established ‘Centre of Excellence’ in data at Kingfisher with expertise in
artificial intelligence (AI), machine learning, advanced analytics and data platform
engineering

–      New Group-developed recommendation engine implemented at B&Q and Screwfix,
driving higher click-through and add-to-basket rates as well as faster response 
times

–      Signed partnership with Google Cloud for infrastructure, platform services
and AI solutions

–      Utilising data analytics and AI to develop tools to support better pricing
decisions, better promotional and markdown effectiveness, and enhanced visibility
of our end-to-end supply chain

–      Developing opportunities to quickly monetise our data capabilities through
retail media, including advertising placed within our e-commerce platforms and apps

·      **Differentiate and win through own exclusive brands (OEB):**

–      OEB continuing to drive affordability, product innovation and reduced environmental
impact, and carrying a higher gross margin % on average than branded products

–      Total OEB product sales of £5.8bn, up 15.4% on a 3-year LFL basis and representing
45% of Group sales (FY 21/22: 45%)

–      Good performance in kitchen, bathroom & storage and EPHC (electricals, plumbing,
heating & cooling) categories, all showing YoY growth. All categories up on a 3-
year LFL basis

–      Completed roll-out of 32 new and redeveloped OEB brands to drive differentiation
between retail banners and support extended ranges

·      **Develop our trade business:**

–      Accelerated Screwfix openings in the UK & Ireland, and strong progress in
developing the proposition in France

–      TradePoint (in B&Q) 3-year LFL sales growth of +31.5%, outperforming core
B&Q and reaching 22% sales penetration (FY 21/22: 20%)

–      Opened 18 new TradePoint counters in the UK and first 8 counters in Ireland

–      Launched plan to grow trade customer penetration across all other banners,
including new trade loyalty programmes in Poland and Iberia, and the introduction
of new trade-focused services and OEB & branded product ranges

·      **Roll out compact store formats:**

–      Accelerated compact store tests; opened 17 new compact stores in the UK, 
France and Poland

–      High street concept tests (_B&Q Local_ in the UK, _Casto_ in France and _Castorama
Express_ in Poland) continue to deliver encouraging learnings and results

–      Small retail park concepts also showing positive results

–      Entering final testing phase for Screwfix ultra-compact ‘XSR’ store format

–      Planning to launch first test of a new Brico Dépôt France 1,000 sqm format
in FY 23/24

·      **Lead the industry in Responsible Business and energy efficiency:**

–      Brought forward pay awards and support for colleagues to help manage higher
costs of living

–      Exceeded target for 1.5°C aligned science-based scope 1 and 2 carbon reduction,
reducing emissions by 52.7% against a FY 16/17 base year

–      Announced new net-zero emissions target for our operations (scope 1 and 2)
by the end of 2040

–      Sustainable Home Products (SHP) sales of £6.2bn, representing 47% of Group
sales (FY 21/22: 44%). Raised target for growth of SHP to 60% by FY 25/26

–      11% of Group sales from energy and water-saving products

–      Developed innovative end-to-end solutions at B&Q, Castorama France and Brico
Dépôt France to help customers create personalised energy efficiency action plans
for their homes, including access to relevant products and services

·      **Human, agile and lean:**

–      Embedding ‘test and learn’ culture across the Group, alongside key leadership
behaviours to support delivery of our strategy

–      Strengthened talent and capability in key areas, including technology, data
and trade

–      Multi-year cost reduction programmes continue to help offset inflationary
pressures

–      Four further store rightsizings completed in the UK, with improved sales 
densities at all locations

–      Increase in net inventory YoY driven by inflation; inventory in units (volume)
down

–      Stock provisioning and de-listed stock rates remain below pre-pandemic levels

–      Actions underway to further optimise supply chain, inventory management and
sourcing footprint

**Footnotes**

^((1)) The Board has proposed a final dividend per share of 8.60p (FY 21/22 final
dividend: 8.60p), resulting in a proposed total dividend per share of 12.40p in 
respect of FY 22/23 (FY 21/22: 12.40p). The final dividend is subject to the approval
of shareholders at the Annual General Meeting on 27 June 2023.

^((2)) Net debt includes £2,444m lease liabilities under IFRS 16 in FY 22/23 (FY
21/22: £2,376m).

^((3)) Represents the compound annual growth rate (CAGR) of total sales for the 
UK, France and Poland between FY 19/20 and FY 22/23 (in constant currency).

^((4)) Market growth (in constant currency) for the UK, France and Poland based 
on a Kingfisher internal analysis covering 2,225 retailers (on a calendar year basis).

^((5)) February 23/24 total and LFL sales represents the calendar month February
2023 compared against February 2022, in constant currency. The figures are provisional.

^((6)) Guidance assumes current exchange rates. According to Company-compiled consensus
estimates as of 14 March 2023, the current consensus of sell-side analyst expectations
for FY 23/24 adjusted pre-tax profit is £633m.

**Non-GAAP measures and other terms**

Throughout this release ‘*’ indicates the first instance of a term defined and explained
in the Glossary (Section 6). Not all the figures and ratios used are readily available
from the unaudited final results included in part 2 of this announcement. Management
believes that these non-GAAP measures (or ‘Alternative Performance Measures’), including
adjusted profit measures, constant currency and like-for-like (LFL) sales growth,
are useful and necessary to assist the understanding of the Group’s results. Where
required, a reconciliation to statutory amounts is set out in the Financial Review(
Section 5).

**Final results announcement and data tables**

This announcement and data tables for FY 22/23 can be downloaded from the Investors
section of our website at www.kingfisher.com/investors. You can follow us on LinkedIn
and Twitter (@kingfisherplc) with the results tag #KingfisherResults.

**Results presentation**

We will host an in-person results presentation for pre-registered analysts and investors
today at 09.00 (UK time) at the London Stock Exchange, 10 Paternoster Square, London,
EC4M 7LS. A simultaneous live video webcast of the presentation and Q&A will also
be available via the Investors section of our website at www.kingfisher.com, and
subsequently available on demand.

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