After Q3 results were posted on Monday (25 November), the Kingfisher (LSE: KGF) share price slumped by 14%.
The B&Q owner posted sales in line with its targets, with “improved performance in August and September” in the words of CEO Thierry Garnier. But the firm has to downgrade its full-year outlook, due to “increased consumer uncertainty in the UK and France in October, related to government Budgets in both countries.”
The share price had been doing well in 2024, up until now.
Lower guidance
The update told us: “We believe the UK & Ireland and Polish markets are currently tracking within the higher end of our scenarios. We believe the French market is continuing to track at the low end.“
As a result, Kingfisher has tightened its full-year guidance range. The company had previously put profit before tax at between £510m and £550m. And it just dropped it to the £510m to £540m range.
But hang on, that’s hardly any change at all. Does that justify all the doom-and-gloom headlines I’m reading today? Or the big share price fall? I don’t think so.
Healthy finances
Looking at the cash situation, I see reasons to be cheerful. The company is still on target to hit £120m structural cost reduction targets this year.
And with “a significant year-on-year reduction in net inventory” as previously planned, free cash flow guidance remains at £410m to £460m.
The latest report also said: “We are on track to complete our current £300m share buyback programme in March 2025 and remain committed to returning surplus capital to shareholders.“
Dividend forecasts
I don’t expect any updates on the dividend until FY results in March. But the interim dividend was pegged at 3.8p per share, as the company spoke of its aim to “to grow the ordinary dividend progressively over time.”
The cash flow outlook seems strong. And with surplus this year used for share buybacks, I’m reasonably confident in the full-year dividend.
Forecasts suggest a 4.8% yield now the share price has dropped back. And I find that attractive for a retail stock, especially as it looks like cover by earnings should be fine and rising.
Investor reaction
I think the share price fall shows how nervous stock market investors can be these days. Kingfisher has only lowered the top end of its profit guidance, and not by much.
The middle of the range is down just £5m, which is hardly anything for a company this size.
Admittedly, the retail outlook is still tough. And Kingfisher’s outlets sell products that we can mostly do without when our pockets are squeezed.
Will I buy?
This Kingfisher share price fall tempts me, despite the short-term risks. One of those risks is that profit warnings (if we can really see this as a warning) often come along in twos or threes. The next few months should be worth watching.
For now, though, my wish list is headed by financial stocks that I like even better.
