- DIY retailer delivers flat core sales
- Maintains full year profit guidance
- Liberum says shares are far too cheap
Shares in Wickes (WIX) weakened 7% to 116p after the home improvement retailer reported flat third quarter like-for-like sales in its core business as the pandemic-induced DIY boom lost momentum and hard-pressed UK consumers deferred big ticket projects.
However, there was some relief for investors as Wickes left full year pre-tax profit guidance unchanged in the £72 million to £82 million range following what management insisted was a ‘stable’ third quarter performance.
WHY DID Q3 CORE SALES FALL FLAT?
Wickes delivered total like-for-like sales growth of 2.6% for the 13 weeks to 1 October 2022, up from 0.8% in the first half as its Do-it-for-me (DIFM) business worked through a bumper order book.
Like-for-likes in the core business, which includes DIY product and local trade sales, ground to a halt as trading in July and August was impacted by the heatwave and DIY sales softened amid the escalating cost-of-living crisis.
According to the latest figures from the Office for National Statistics (ONS), UK retail sales suffered a bigger-than-expected decline in September. High inflation weighed heavily on consumer spending power and contributed to a fall of 1.4% in both sales values and volumes last month.
While the Covid-induced DIY boom is fading, Wickes’ core like-for-likes were 27.3% ahead on a three year basis.
This underscores the market share gains the kitchen, bathroom, tool and timber seller made during the pandemic. Wickes also pointed out that core sales have actually strengthened since the beginning of September.
WOOD SAYS WICKES IS WELL PLACED
Accordingly, Wickes is sticking with its guidance for full year adjusted pre-tax profit to fall from £85 million to within the £72 million to £82 million range.
Yet looking further ahead, the retailer warned ‘uncertainties remain regarding consumer confidence and operating cost inflation’ and that its costs will be impacted by rising energy prices.
Chief executive David Wood commented: ‘This has been a period of further progress across all parts of the business, with customers and tradespeople continuing to come to Wickes on the strength of our value, availability and service.
‘While we are watchful of external headwinds, we are continuing to focus on our growth levers and on maintaining rigorous control of our costs. Our uniquely balanced business model leaves us well placed to continue to outperform the market.’
WHAT IS THE LIBERUM VIEW?
Liberum Capital, which has a ‘buy’ rating and 360p price target for Wickes, said the third quarter delivered ‘a robust performance with a stabilisation in the core division’ and noted that ‘DIFM is delivering on its elevated order book and the group continues to make good progress on its strategy’.
The broker continued: ‘With the group showing a resilient performance and stabilisation post the summer, this bodes well for earnings for this financial year. While energy costs impact the numbers, the rest of the P&L (profit and loss account) remains unchanged.
‘We should not forget that one-off de-merger costs do not repeat next year meaning Wickes offers a circa 20% free cash flow yield, highlighting a valuation that is significantly out of kilter with what the group is delivering and its prospects.’
