Encouragingly, Kingfisher’s latest quarterly trading update stated that it now expects sales and profit for the full year to be towards the upper end of its previous expectations.
Of course, the company has benefitted from the acceleration of e-commerce sales during the pandemic. While lockdowns have disrupted its in-store sales, the firm has reported a significant rise in online sales. They now make up 16% of its total sales, having grown by 133% compared to two years ago.
Furthermore, Kingfisher’s share price may have been catalysed by the growth in working from home. Demand for home-related products has risen during the pandemic, as consumers have shifted a proportion of spending from leisure activities in response to Covid-19 containment measures.
Clearly, it is impossible to know whether such changes will prove permanent. But it seems likely that working from home will be more popular post-pandemic than it was prior to the emergence of Covid-19. This could provide stronger operating conditions for home-related product retailers.
Kingfisher’s share price could be catalysed by continued online and home working trends. However, it also faces several near-term challenges that may create heightened volatility. For example, rising inflation may put pressure on margins across the retail sector. Meanwhile, further Covid-19 containment measures could disrupt the economy’s outlook and prompt weaker consumer confidence.
However, the firm reported that it is making encouraging progress in managing inflationary pressures. And, with Covid-19 lockdown measures potentially making home working trends more embedded, the long-term prospects for the business appear to be relatively attractive.
Even after their rise over the past year, Kingfisher’s shares trade on a relatively modest valuation. For example, they currently have a forward price-earnings ratio of around 11. This suggests that they offer a wider margin of safety than a number of FTSE 100 index retailers.
As a result, and while volatility may be high in the short run, they appear to offer FTSE 100 outperformance potential over the coming years.