Kingfisher shares soar as profit guidance rises and hedge funds count losses

Shares in Kingfisher, the owner of B and Q, surged by nearly a fifth after the company increased its annual profit guidance amid rising demand for kitchens and bathrooms. This dramatic rise dealt a significant blow to several hedge funds who had positioned themselves against the retail stalwart.

Kingfisher now expects to deliver full year adjusted pre tax profits at the upper end of its previously forecast range of £480 million to £540 million. Annual cash flow guidance was also raised to between £480 million and £520 million, up from the prior range of £420 million to £480 million. At one point, shares rose more than 17 per cent, the most substantial single day gain since 2008 for the FTSE 100 retailer, putting intense pressure on short sellers.

Hedge funds including Marshall Wace, AKO Capital, GLG Partners, Kintbury Capital, and Citadel had collectively established a net short position amounting to 4.63 per cent of Kingfishers outstanding shares, as disclosed by filings with the Financial Conduct Authority. Data from analytics firm Ortex indicated that paper losses for these funds reached £30.6 million at close of London trading. London based AKO Capital was hardest hit, losing £8.8 million on paper, followed by Kintbury Capital down £6.9 million, GLG Partners down £5.8 million, Marshall Wace down £5.6 million, and Citadel Advisors Europe down £3.5 million.

Kingfishers momentum stems from robust UK and Ireland performance, where like for like sales grew 3.9 per cent to £3.5 billion. The company credits resilient consumer demand, lower mortgage rates, growth in real wages, and a recovering housing market. Seasonal products benefitted from favourable weather, and big ticket items continue to drive group sales, which reached £6.81 billion for the six months ending 31 July, beating analyst consensus and marking a 1.3 per cent like for like increase. Operating profit for the period rose to £383 million, a 2.1 per cent year on year gain.

Despite these positives, Kingfisher remains aware of industry challenges such as rising taxes, inflationary pressures, and a potential softening in the labour market. The group faces an expected £145 million impact from wage inflation and increased national insurance contributions, alongside new packaging fees coming into effect. To counter these costs, the company aims to mitigate through improved gross margins and cost controls. Job cuts totalling 672 roles at B and Q have also been announced as part of a restructuring move.

Proposed changes to business rates by the government could put further pressure on large high street retailers, requiring them to subsidise smaller competitors, an approach Kingfishers chief executive Thierry Garnier describes as unfair. A disproportionate tax burden on bricks and mortar businesses, especially given the lighter taxation of large online retailers, adds to the complexity of the sector’s future outlook.

Analysts remain cautiously optimistic. RBC Capital highlights Kingfishers strengthened digital footprint and the overseas growth prospects of the Screwfix brand, although they note that profitability abroad may take considerable time.

Investors responded enthusiastically as Kingfisher shares closed up 14.6 per cent at 289.10p, with this robust performance offering the latest twist in the ongoing battle between retailers and short sellers on the London market.