Analysts hail Kingfisher's new strategic vision under Veronique Laury

31st Mar 2015 10:45

Analysts were largely very impressed by the strategic vision nailed to the wall by Kingfisher's new chief executive Véronique Laury as she lifted the lid on some less impressive full-year numbers.Almost four months after starting work, Laury had a seemingly difficult week after on Monday she called off the FTSE 100 home improvement retailer's takeover of French group Mr Bricolage and on Tuesday confirmed the departure of B&A chief Kevin O'Byrne and a 19% decline in earnings per share.Results for the year ending January 31 showed sales fell 1.4% to £10.97bn and adjusted pre-tax profit shrank 7.5% to £675m, behind consensus forecasts due to a slower French market in the second half of the year and foreign exchange headwinds.But Laury announced some home improvements for the company's organisational structure and store strategy that improved the market's mood, helped by a £200m capital return during for the coming financial year.Canaccord analyst Mark Photiades felt the biggest news was that Kingfisher, which also owns the Castorama and Brico Depot chains in France and the Screwfix chain mostly in UK, would close 60 stores in the UK and put a greater emphasis on standardising the product offer across the group's formats under a new, more unified management structure.He said the closures would tackle the problem of excess space in the UK and would have a broadly neutral profit impact, assuming that on average up to a third of sales transfer to other stores. There will however be a £350m exceptional cash charge, mainly from onerous lease provision.Investec analyst Kate Calvert highlighted another strand of Laury's plan to extract greater economies of scale from the company's £7.4bn buying operation, and said previous management teams have failed to capitalise upon this for years."What's different is that Kingfisher has started a four-year IT infrastructure upgrade programme to give it modern IT systems and a single view of stock. Thus, any benefits are likely to be back-ended."Brewin Dolphin's Nicla Di Palma said the new strategy makes sense, with the new focus on capital discipline and costs spelling good news for margin expansion."In the UK, Kingfisher over expanded in the late Nineties and early 2000s and now finds itself with too many stores and very long leases. Exiting now means better industry structure and pricing power. We also think unifying the offer across countries makes sense: consumers want similar things in different countries."Di Palma also was happy with the collapse of the Mr Bricolage deal as, although management stated that it is "considering all options", she believes the decision shows further capital discipline and also saves important management time.Alex Joyner at Galvan Research said the collapse of the Bricolage deal "still leaves a big hole in Europe" and Laury will "need to find new ways to generate growth on the continent".However he said her vision for 'ONE Kingfisher' is encouraging and hailed the stores closures as a bold move.Richard Hunter of Hargreaves Lansdown Stockbrokers said the transformation plan "sounds promising" and the annual results underlined why it was necessary."A number of factors are at play, such as the continuing pressure on margins, currency headwinds, restructuring costs and monies set aside for the now defunct Mr Bricolage offer. In particular, the company's core market in France has generally suffered, with the outlook for the region remaining cautious."He noted that over the last year the shares remain down 13%, as compared to a 4% hike for the wider FTSE 100, with the market consensus weakening slightly to a hold of late."Some early measurable successes on Kingfisher's new look will likely be required before the general view moves."