Troubles in both its core British and French territories has caused me to retain a cautious perspective on FTSE 100 giant Kingfisher (LSE: KGF) for what now seems like an age.
But the DIY colossus is not the only retail play I have long warned investors against ploughing their hard-earned cash into.
Indeed, I'm not surprised to see investor sentiment towards McColl's Retail Group(LSE: MCLS) sour a little further in start-of-week business. I last warned share pickers against splashing the cash on the company back in December on the back of deteriorating trading conditions.
The convenience store giant was last dealing 5% lower in Monday's session, continuing its recent downtrend and meaning that price levels not seen since last July are now being revisited.
Last time I covered McColl's, I noted that retail sales growth on a like-for-like basis registered at just 0.1% during the 12 months ending November 2017. But turnover has deteriorated even further since then -- on a comparable basis it dropped 2.2% in the 11 weeks to February 11.
The convenience segment is, along with the online marketplace, one of the bright sparks for Britain's beleaguered grocers.
However, this does not make McColl's immune to the wider pressures created by intensifying competition as the Big Four supermarkets build up their own network of convenience supermarkets, nor the broad revenues problems caused by faltering shoppers' spending power.
To make matters worse, McColl's has additionally been smacked by the demise of wholesaler Palmer & Harvey (P&H) at the back-end of autumn. While the business inked supply deals with Nisa and Morrisons to minimise the consequent disruption for its newsagents and stores, like-for-like sales at outlets previously supplied by P&H still dropped 3.6% in the period.
This was much, much worse than expected and is likely to see predictions of a 19% earnings rise in fiscal 2018, propped up by McColls's expansion drive, fall by the wayside. And as I say, with the fragmentation in the supermarket sector still intensifying, the anticipated 17% profits improvement for next year could also see the axe.
A low forward P/E ratio of 10.9 times reflects the possibility of such downgrades now and in the future, and would therefore not be enough to encourage me to invest. And nor would vast dividend yields of 4.6% and 4.8% for this year and next.
Another scary dividend selection
As I previously said, increasingly-challenging market conditions would also encourage me to switch out of Kingfisher without delay.
Yet like McColl's, it could also be considered an attractive destination for income chasers, what with dividends expected to tear higher. The City's predicted 10.6p per share dividend for the year concluding January 2018 is expected to rise to 11.7p this year and again to 13.7p in fiscal 2020. Thus yields skip from 3.2% in the present period to an inflation-busting 3.8% next year.
But these projections are underpinned by expectations that earnings will rise 12% and 16% in fiscal 2019 and 2020 respectively, a hard task in the current climate as disruption created by its transformation plan continues, and the wider home improvement market struggles. The B&Q owner saw group sales duck 0.5% during the three months to October as a result of these troubles.
I believe Kingfisher's share price is in danger of swinging lower again in this climate, and do not reckon a cheap forward P/E ratio of 13.5 times could prove enough to save its bacon.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.