Kingfisher Earnings: Further Drop in Profits Expected

No-moat Kingfisher reported a 25% decline in profit before tax and has guided for a further 8% decline at the midpoint in fiscal 2025. The company has faced a perfect storm driven by weak demand for home improvement activity, due to higher interest rates, which has required promotional activity to drive sales, with persistent labor and energy inflation adding to its challenges. We anticipate Kingfisher can overcome its short-term headwinds through further space-optimization in France and improving sales trends in Poland, which will support operating leverage. We maintain our GBP 2.80 fair value estimate and view shares as marginally undervalued.