Kingfisher Earnings: Rise in Promotional Activities and Cost Inflation Leads To Big Drop in Profits

Kingfisher reported a 23% decline in retail profit during the first half of its fiscal year, driven by cost inflation and an increase in promotional activities to drive sales in France and Poland. The group’s reliance on clearance activities to support sales highlights its no moat rating, which we maintain. Management cut its full-year profit-before-tax guidance to GBP 590 million, a 7% reduction from previous estimates. We lower our fair value estimate to GBX 290 from GBX 310 to incorporate the group’s weak profit outlook, but keep our top-line estimates unchanged. Shares appear undervalued.