British builders’ merchant Travis Perkins (TPK) has warned profitability at DIY store chain Wickes will be lower than expected as people are buying less in a competitive environment.
Travis Perkins says earnings before interest, tax and amortisation (EBITA) will be at the lower half of analyst forecasts of £360m to £390m.
The warning has triggered a sell-off with the shares sliding 12% to £11.80.
The company is undertaking a significant cost savings programme to hopefully bounce back from a 5.8% sales decline at Wickes in the first half of 2018.
Overall like-for-like sales grew 4.2% thanks to robust growth in plumbing and heating and contracts division.
SHOWROOM SALES UNDER PRESSURE
In contrast, adjusted operating profit slid 5.8% to £179m due to the impact of weaker kitchen and bathroom showroom sales in Wickes and higher operating costs in general merchanting.
There are £286m in one-off costs including a £246m goodwill impairment charge and £10m in restructuring costs for Wickes.
EARNINGS DOWNGRADES OF UP TO 5%
Deutsche Bank’s Priyal Mulji says earnings guidance by analysts could be cut by up to 5%, but flags most of the potentially temporary issues are at Wickes, which is likely to become a diminishing part of the business.
‘The performance of the other businesses has been robust - significant recovery in demand after the cold spell in the first quarter, good recovery of cost inflation and unchanged management expectations for the second half,’ comments Mulji.
UBS analyst Gregor Kuglitsch argues Travis Perkins enjoyed stronger second quarter trading with solid sales growth, but believes underlying EBITA will be lower than guidance at £335m to £350m.
Reflecting on the weak performance of Wickes AJ Bell investment director Russ Mould says: 'There are likely to be two contributing factors to this negative trend. First, economic uncertainty means consumer sentiment is weak and spending on home improvement like all other big ticket items is under pressure.
'Second, the next generation of homeowners are much more reluctant to take on DIY projects themselves and would rather pay someone else to do it.'
