Reliance Worldwide (RWC) | Kingfisher PLC: First Quarter Trading Update to 30 April 2020
|· In early April, RWC announced 40% of its UK workforce had been placed on furlough, which enabled employees to receive salary support offered by the UK Government. Activity in both the UK and Europe remains subdued. RWC’s UK distributors continue to operate on a restricted and limited service basis. Aggregate demand in EMEA is currently running at 60-65% lower than the pcp. As such, RWC employees in Europe have similarly been placed on furlough.
· Kingfisher Plc, a UK building materials distributor and key Reliance customer, announced its 1Q20 sales to 30 April 2020. Overall, sales declined 24% to £2.2 billion, with like-for-like sales down 24.8%. Trading up until mid-March had continued the positive trends the company had seen in 4Q19. However, the remainder of the quarter was significantly impacted by COVID-19 and the subsequent lockdown. The decline in sales was only partly offset by strong e-commerce sales growth, which increased four-fold since mid-March.
· Kingfisher has had a phased reopening of stores in the UK (and France) since the second half of April. Following the company’s previous update on 23 March 2020, over 95% of its stores are currently either open and/or offering a contactless click & collect service. In the final week of April and first week of May, the Group’s like-for-like sales trend continued to improve due to phased store re-openings in the UK and France. This has resulted in an improving relative sales trend. Group LFL sales have improved from down 74.0% in the first week of April to +2.7% in the first week of May, largely driven by “exceptional demand at B&Q”.
· Overall, Reliance should be a highly defensive company, given its primary exposure to the repair and remodel markets. While Australia and North American operations remain resilient, its European operations have been significantly disrupted. While we are encouraged by the move back to positive like-for-like sales growth from one of its key distributors, we maintain a Hold call, seeking more clarity on a stabilisation of its European operations.