Kingfisher (KGF) reported first quarter 2014 sales and profit figures that tracked very slightly ahead of our full year estimates, due to robust sales growth in the United Kingdom. We believe this relatively strong performance lends support to our narrow economic moat rating, as Kingfisher is broadly holding onto its market share through the UK housing recovery.
Our thesis that rising U.K. housing prices will drive above-average mid-to-high single digit revenue growth through at least the end of 2014 is also playing out. However, as consensus estimates have risen materially since the release of 2013 earnings, the first quarter numbers fell short of those expectations. We believe any near-term weakness in the stock as a result of this shortfall may present investors with an entry point to a retailer with fairly strong competitive advantages at a time that momentum is building in one of its core markets.
Double-digit like-for-like sales in the U.K. and Ireland drove a respectable consolidated 6.1% comp in the first quarter, roughly in line with our 6% estimate for fiscal 2014. Screwfix was particularly strong as higher construction activity boosted sales. The firm was cycling poor weather conditions in the first quarter last year, so we do not expect this growth rate to be sustainable, and we retain confidence in our full year estimates. House prices are a key driver of our turnover assumptions, and we will likely stand by our near- and medium-term forecasts for the U.K. and Ireland segment if house prices continue to rise at their current clip of around 8% this year, and then cool off to low-to-mid single digit growth over the next few years.
While France remains disappointing, we believe that any turnaround in industry sales drivers in the next year or two could provide another fillip for the stock. Better weather patterns helped like-for-like sales in France to swing positive, gaining 1.6%. However, we remain cautious: The underlying drivers of the business – house prices and the consumer element of GDP – remain fairly soft.
For the time being, we're standing by our like-for-like sales growth assumption of just 1% in France for both 2014 and 2015. We don't forecast a housing recovery until 2016, but any signs of life in the housing market before then could lead to sales in France exceeding our forecasts.
Unlike many brick-and-mortar retailers, we believe Kingfisher has a narrow economic moat, which we believe is evident in its first-quarter performance. While other retailers have lost share in the recovery to e-commerce, home improvement retailers have some structural defences against the encroachment of the online channel, including the need for immediate receipt of products, the high-touch level of service, and the high level of exclusive stock keeping units. It is its ability to defend its market share through its competitive advantages that gives us confidence that Kingfisher will fully benefit from the rally in the UK housing market. We believe investors should consider the stock on any near-term weakness due to missing overly-optimistic consensus estimates.
