Investors are assessing how permanent the pandemic gains and losses of businesses will be. An update from do-it-yourself chain Kingfisher, which runs UK retailer B&Q and French counterpart Castorama, suggests it is keeping some of its lockdown-inspired lustre.
The UK-listed group said like-for-like sales in the first quarter were 16 per cent ahead of pre-pandemic levels. Sales were 5 per cent lower than last year, when domestic projects replaced days out for many households. However, an economic downturn would prove far more testing than the post-Covid upswing.
The market still sees Kingfisher as inescapably cyclical. The shares have lost a third of their value this year. Investors were betting on a slowdown before Russia invaded Ukraine.
DIY and home upgrades by professional tradespeople are exposed to shrinking real incomes as well as the wider leisure choices of householders. A further slowdown is inevitable. A bad recession might take sales below pre-pandemic levels. That would be a revealing test of chief executive Thierry Garnier and one he appears prepared for.
Garnier’s strategy since joining in 2019 has been to introduce greater consumer choice and unwind the centralisation put in place by his predecessor. The success of this is tough to quantify. But market share gains at B&Q are a positive signal. The company is also financially stronger. An additional £300mn buyback announced on Monday still leaves net financial leverage below 2019 levels.
None of this would prevent a sell-off in the shares if consumer spending contracts as sharply as some expect. Record inflation, now at 9 per cent in the UK, suggests it is possible. But that also detracts from record low unemployment. The combined “misery index” of the two is now only the highest since 2011.
Kingfisher still managed to increase its sales that year. Peak-to-trough earnings-per-share estimates fell 14 per cent back then, amid a eurozone crisis that hurt Kingfisher’s French businesses. That was roughly double the current fall from last year’s peak, implying similar reductions if the European economy falters badly again.