Kingfisher (LSE: KGF) is one British blue-chip I’m determined to avoid like the plague in 2020.
The British retail sector faces additional stress in the New Year as political and economic uncertainty persists, and latest data from the Office for National Statistics has hardly lifted the mood either. The body most recently advised that retail sales in the UK had missed forecasts and fallen 0.6% in November as shoppers continued to shun the pull of big discounts and stay away.
The growing reluctance to spend that shoppers are feeling has certainly manifested itself in DIY specialist Kingfisher’s aisles. In the three months to October, like-for-like sales across its B&Q and Screwfix stores in the UK and Ireland were down 1%, worsening from the 0.7% decline posted in the first six months of 2019.
But the steady declines of its domestic businesses look like mere trivialities compared to the problems it’s facing in France. Underlying sales at its Castorama and Brico Dépôt shops had tanked 6.1% in the third quarter, a result that was also worse than the 4.4% decline endured between January and June.
A colossal to-do list
The result is hardly what new chief executive Thierry Garnier, parachuted in from Carrefour in September, would have been hoping for. In fact, his commentary in the wake of the period illustrates just what a Herculean task the new man has to vanquish the fallout of Véronique Laury’s stint in charge, and to finally bang the stuttering Kingfisher One restructuring programme on the head.
Garnier laid into the “organisational complexity” at the retailer that has disrupted sales, claiming that Kingfisher had “not found the right balance between getting the benefits of group scale and staying close to local markets,” and that it was “trying to do too much at once with multiple large-scale initiatives running in parallel.”
As a consequence, it will take steps to either shut down or suspend some initiatives, Garnier said, while embarking on other measures like fixing its French supply chain and improving its IT systems. Great news, surely, though of course such measures will take a long time to enact. So shareholders may have to endure further rounds of nail biting until these institutional shortcomings are overcome and green shoots begin to appear.
And what’s more, Kingfisher has to get to grips with these problems at a time when consumer spending levels continue to sink and the likes of Amazon continue to chip away at its traditional customer base.
City analysts expect earnings to rise 2% in the fiscal year to January 2020 and to rise fractionally in the following period. I believe the risks to these estimates are colossal, though, and neither a low forward P/E ratio of 10.5 times, nor a chubby 5% forward dividend yield, are enough to tempt me in. I’d rather put my cash in another big-yielding FTSE 100 stock today.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019