Fevertree goes flat, and Kingfisher sales slump (again)

Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

“Donald Trump seems to have gone back on the offensive overnight – threatening to raise tariffs even higher if a trade deal with China cannot be agreed.

“This spooked investors in Asia and fed through to performance on Wednesday morning, with the FTSE 100 taking a step back in early trading,” says AJ Bell Investment Director Russ Mould.

Fevertree

“There has been considerable speculation in recent months that Fevertree has been finding it harder to do business in the UK. That’s now confirmed in a trading update which is a tale of two countries. The US is doing better expected but the UK isn’t doing so well, specifically with sales in shops and supermarkets.

“In addition to tough comparative figures to beat year-on-year and a slowdown in consumer spending, the UK problems are also likely to have been caused by increased competition. After all, if Fevertree has done so well then other tonic providers will naturally want to have a slice of the pie by copying its posh product approach. Imitation is the sincerest form of flattery.

“Schweppes has been pushing its 1783 tonic product more this year, Fentimans has also been taking shelf space and Lamb & Watt is another example of a rival trying to grab the tonic drinker’s attention.

“The investment case for Fevertree was originally centred upon the company enjoying rapid success in the UK. Now it is all about replicating this success in the US and so to its credit the company is living up to the hype.

“However, investors have been worried about a so-called transitionary period where the UK plateaus before the US gains sufficient scale. That now seems to be the case, hence why the share price has been weak of late.

“Another concern is the rise of the teetotal movement, particularly among younger people. That begs the question of whether fast growth products like gin may have seen their best days and sales growth starts to moderate in the next few years. That would naturally have a negative knock-on effect for Fevertree and its range of mixers.

“If you take a step back and look at the bigger picture, Fevertree is still doing very well. Everyone knew the UK business would eventually mature and we’re now moving towards that stage. The real problem would have been Fevertree’s failure to achieve success in the US, something which has been the case with many other British companies.

“So far it is doing a great job stateside and so today’s warning that group revenue will come in slightly below analyst expectations is hardly a sign that everything has gone wrong with the business.”

Kingfisher

“Life just never gets any easier for B&Q-owner Kingfisher. The company seems to be running very hard to get nowhere in particular.

“Recently appointed chief executive Thierry Garnier has diagnosed what he sees as some of the problems. It is trying to do too much at once and there is too much complexity in the business with the result that the company hasn’t been good enough at giving customers what they want.

“Garnier is right to bring the focus to this part of the equation as ultimately all retailers should be trying to get the right products in front of the right people, in the right place and at the right time.

“His assessment of the problems facing the company amount to a thinly veiled criticism of predecessor Veronique Laury who, earlier this year, left the business part way through a big five-year restructuring process.

“However, ultimately the company could just be swimming against the tide. Fewer people seem to have the time, skills or inclination to do DIY and would rather get a professional in instead.

“Accordingly its Screwfix chain, which sells to trade, is performing much better than the struggling retail-facing B&Q business.

“The French and wider international businesses are also performing poorly – suggesting geographic diversification is doing the group few favours.”

These articles are for information purposes only and are not a personal recommendation or advice.