Kitchen products supplier Howden Joinery (HWDN) has enjoyed a satisfying start to 2017 in a difficult retail environment with UK sales growth up 4% year-on-year.
UK sales have increased by 6.5% in the first four weeks of the second half of its financial year and management feel confident enough to maintain full year expectations.
Investors are clearly happy that Howden has not followed some of its peers in the retail sector by downgrading earnings guidance, hence why the shares enjoy a 1% hike to 433.7p.
WHY ARE SECTOR CONDITIONS POOR?
The retail sector has struggled this year as increased economic and political uncertainty and a slide in consumer spending has dragged on performance.
For Howden, operating profit has declined from £74.7m in 2016 to £66.6m, which it attributes to costs linked to a new distribution centre and product introduction programme.
Group sales have climbed from £528.9m to £553m over the same period. The company has benefited from a growth in new depots and more customer accounts in the UK.
WHAT DO THE ANALYSTS THINK OF THE NEWS?
N+1 Singer analyst Matthew McEachran is cautious on Howden Joinery’s outlook, but highlights the positives in the trading update.
He says the company beat pre-tax profit expectation by 3% mainly due to a ‘better-than-feared’ gross margin decline of 45 basis points to 64.1%, which was partially offset by higher than anticipated costs.
Pre-tax profit for the half year period was £65.6m.
While McEachran believes price hikes have been passed on through new product ranges, he is concerned about weaker adjacent markets and sliding confidence that could hit spending.
