Topps Tiles warehouse
The warning from Topps suggests homeowners are under too much financial pressure to spend freely on home improvements / Image source: Adobe
  • Like-for-like sales trend worsens
  • Profits to be second-half weighted
  • Liberum halves FY24 estimates

Like-for-like sales tumbled 11.3% in the second quarter at Topps Tiles (TPT) amid persistently subdued demand in the UK RMI (repair, maintenance and improvement) market, especially for bigger-ticket projects.

Shares in the UK’s market-leading tile retailer cheapened 3% to 42.7p on a warning first-half profits would be impacted by the weaker market, the timing of accrual for holiday pay and seasonally-higher energy usage in the period.

The warning from Topps, which expects profit in 2024 to be materially second-half weighted, suggests UK homeowners remain under too much financial pressure to spend freely on home improvement projects in the way they did during Covid lockdowns.

LIKE-FOR-LIKES TUMBLE

Wall-to-floor tiles seller Topps, which trades from 304 UK stores, reported a 5.9% drop in sales to £122.6 million for the half ended 30 March 2024 as it lapped 2023’s record comparative.

Second-quarter like-for-sales were down 11.3% year-on-year amid lower footfall, particularly among homeowner customers, with the revenue trend worsening from the first quarter’s 7.1% decline.

Management attributed the disappointing sales outturn to the soft market backdrop highlighted by other RMI market players such as Travis Perkins (TPK) and home improvement retail rivals Kingfisher (KGF) and Wickes (WIX).

The DIY retail giant’s shares are too cheap given its recovery potential and attractive cash returns

ROOM FOR IMPROVEMENT?

However, Topps Tiles’ gross margin was up year-on-year as cost of goods pressures continued to ease, while trade customers once again proved more resilient, albeit sales from tradesmen were lower year-on-year.

The retailer also reported continued strong trading in its pure-play online businesses, with first-half sales rising 38.3% thanks to good growth in Pro Tiler and positive sales progress in Tile Warehouse.

Furthermore, the turnaround at commercial tiles arm Parkside seems to be gaining traction with the business expected to reach breakeven over the first half despite the difficult commercial market.

‘With its market-leading brands, specialist expertise and world-class service, the group is well positioned to benefit from a cyclical recovery in the RMI market,’ insisted Topps. ‘The business remains in a strong financial position, with a robust balance sheet, and is focused on maximising market opportunities and emerging in a stronger competitive position as the market improves.’

BROKER VIEWS

Liberum Capital downgraded its recommendation from ‘buy’ to ‘hold’ and slashed its price target from 90p to 40p on the downbeat update.

‘While online and commercial continue to perform well, the deterioration in core brand performance means we lower our full year 2024 group pre-tax profit by 47% to £6.1 million, which flows through to outer years,’ said the broker.

‘We have been long-term buyers of Topps, liking its leading UK market position, management’s strong navigation of the business through Covid and its attractive net cash (excluding leases) balance sheet. However, the more recent deterioration in trading means the outlook for full-year 2024 continues to be challenging and it is hard to identify positive tailwinds for the top line.’

Edison, which believes Topps Tiles’ shares are ‘extremely undervalued’, observed the company was ‘well positioned for the upturn when it comes given its leading brand, breadth of product and customer service.’

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Issue Date: 03 Apr 2024