Kingfisher cutting costs

The company will reveal its first-quarter sales figures on Thursday 28 May, and the restructuring update will be the focus of traders' attention. 

B&Q store
Source: Bloomberg

In March Kingfisher revealed a 15% drop in full-year profits, and to offset the decline in profits the company is going to shut down 60 of its 360 B&Q stores. The last update from the firm also announced the departure of CEO of the B&Q UK and Ireland division, and the company not only plans to reduce the number of stores, but also to operate smaller stores in an effort to better meet its customers' needs.

The UK and Ireland have seen a bounce back in house prices in the past few years, and the rate of growth is becoming more moderate, and it is time for Kingfisher to adapt its strategy. Kingfisher isn’t the only company in its sector that is reducing its store count; Homebase (which is owned by Home Retail Group) will close 25% of its stores in the next four years.  

Kingfisher will reveal its full-year numbers in March 2016, and the market is expecting revenue of £10.5 billion and adjusted net income of £502 million. These forecasts represent a 3.6% drop in revenue and a 1.8% increase in adjusted net profits. The retailer will reveal its first-half numbers in September, and the market is expecting revenue of £5.29 billion. 

Equity analysts are bullish on Kingfisher, and out of the 26 ratings, seven are buys, 12 are holds, and three are sells. The average target price is 343p, which is 6% below the current price. Investment banks are more bullish on Home Retail Group with 20 recommendations. Nine are buys, seven are holds, and four are buys. The average target price is 185p, which is 11% above the current price.

Despite the recent dip in profits, Kingfisher’s share price is still in the uptrend from 2014, but 370p has been a barrier to any additional upside moves, and if this level isn’t cleared the stock could revert back to the support at 340p. The next level of support below that is 300p. If 370p is taken out the 400p will be brought into play, and then 446p will be on the radar. 

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