Shares in Topps Tiles (TPT) plunged more than 20% to 62.8p on Thursday after the UK’s biggest specialist tiles supplier posted a severe profit warning.
UK housing market indicators may have improved since the General Election but Topps warned that the UK home improvement market remains weak. The Enderby-headquartered retailer doesn’t anticipate seeing any benefit until later into the second half.
The news prompted analysts at broker Liberum Capital to slash this year’s pre-tax profit forecast from £13.5m to just £7m.
MARKED SLOWDOWN
Last month, Topps Tiles cautioned first quarter trading had been impacted by political and economic uncertainty in the run-up to polling day, with retail like-for-like sales down 5.4%.
Today, the retailer conceded trading conditions remained challenging in the opening eight weeks of its second quarter, with like-for-like sales dropping 5.5% over the period to 22 February. That represented a marked slowdown from the last five weeks of the first quarter, during which like-for-likes declined by 1.5% with Topps seeing a brief return to normality after the election.
As a result of disappointing second quarter sales and the retailer’s operational gearing, first half profit is expected to be ‘significantly’ down year-on-year, while adjusted profit before tax for the 53 weeks to 3 October 2020 will be ‘materially below the bottom end’ of the £13.5m-to-£14.5m range of market expectations.
BATTENING DOWN THE HATCHES
Against this backdrop of subdued home improvement spending, chief executive Rob Parker insisted Topps Tiles is battening down the hatches in terms of reducing costs and strengthening cash flows.
UK housing market indicators have shown ‘an encouraging improvement’ since the Conservative Party’s thumping poll victory, Parker explained, but these indicators ‘traditionally have a lagged impact on our trading and we would not expect to see any benefit from these until later into the second half - our performance during this period will be key to the outcome for the year as a whole.’
READ MORE ABOUT TOPPS TILES HERE
On the positive side of the equation, Topps Tiles’ management remains ‘confident that our market-leading retail offer and recently established commercial operations give us a strong platform from which to deliver sustainable growth over the medium and long term.’
Nevertheless, Liberum Capital cut its profit forecasts by 50% and also slashed its target price for the shares from 85p to 65p.
