The share prices of Kingfisher (LON: KGF) and Marks & Spencer (LON: MKS) have significantly outperformed the FTSE All-Share index over the past year. Their respective 30% and 56% capital gains are greater than the FTSE All-Share’s 22% return over the period.
Clearly, the two retailers have benefitted from digital-focused strategies that have paid off while consumers have switched to online spending during lockdown.
However, the long-term trend towards online retailing could persist post-lockdown. Indeed, the proportion of UK retail sales conducted online was on an upward trend prior to the pandemic; rising from 7% in 2009 to 21% in 2019.
With relatively upbeat growth forecasts and modest valuations, Kingfisher and Marks and Spencer appear to be well placed to deliver further index outperformance.
Marks & Spencer
Marks & Spencer’s share price has been catalysed by its tie-up with Ocado. It has provided the firm with relatively quick access to online growth opportunities for food, clothing and home products that could continue over the coming years.
In addition, the company’s recent trading update showed that it has made an encouraging start to the current financial year. Notably, its cost reduction programme is helping to mitigate cost inflation, while a more focused clothing and home range, alongside a broader range of food products sold online, appear to be resonating with consumers.
This rise in demand for its products meant sales for the 19 weeks to 14 August were 29.1% higher than the same period of last year and 4.4% greater than the same period of 2019. As a result, the firm increased financial guidance for the current financial year. Furthermore, Marks and Spencer is forecast to deliver a 19% annualised rise in earnings per share between the 2022 and 2024 financial years.
Clearly, factors such as the course taken by the pandemic and the prospect of higher inflation remain threats to its future financial performance. However, trading on a forward price-earnings ratio of 14.5, the stock seems to offer good value for money given its online growth potential.
Kingfisher
Kingfisher’s share price has also been boosted by the contribution from its online operations. Indeed, the DIY retailer recently reported that e-commerce sales in the second quarter of its current financial year were 188% higher than in the same quarter from 2019.
This contributed to a 22.3% rise in like-for-like sales for the quarter versus the same period from 2019, with all of the company’s geographic regions experiencing double-digit growth.
Clearly, this trend could ease as consumer demand naturally shifts from home improvement products popular during lockdown to leisure spending following the end of containment measures.
However, record savings levels amassed during lockdown and consumer confidence figures that have returned to pre-Covid levels suggest that demand for Kingfisher’s products could remain buoyant.
Meanwhile, its strategy to stock a larger proportion of own brands may aid margins and differentiate its offering, while an increasingly localised approach could resonate with consumers in its various geographical locations.
Furthermore, its performance may be aided by the UK’s forecast economic growth rate of 7% in 2021 and 4.8% in 2022. And, with a forward price-earnings ratio of 11, the stock appears to offer a margin of safety compared to many of its FTSE 350 retail sector peers.