Howdens Performs Well in Challenging Market

Howdens have released their interim results this morning, for the first half of 2023.

In the first half of 2023, group sales were +1.5%, with UK same depot growth flattish YoY. Operating margins were down 3.7% to 12.6%, impacted by 90bps lower gross margins as the group maintains a focus on competitive pricing.

The group has taken £23m of productivity and efficiency actions offsetting cost inflation. Net cash at 1H was lower than anticipated at £117.8m due to working capital outflows. On the outlook, the group have edged up its UK opening plans for FY23E (33 openings, 90 reformats), and state trading trends at the start of H2 have been similar to 1H.

• Group sales +1.5% to £926.9m.
• UK revenue growth of +0.6% (flat on a same depot basis).
• Operating profit in 1H was -21.5% to £117.0m (12.6% margin), with PBT of £111.9m. 

Margins

Gross margins were -90bps in 1H to 61% (vs 61.9% in 1H22A). Operating costs before investments in strategic initiatives (£32m in 1H) were maintained at similar levels to 1H22 with £23m of efficiency actions offsetting cost inflation.

Branch network

Opened 9 new depots and reformatted 28 older depots in the UK in 1H. The group plans to open 33 new UK depots (vs prior guidance 30) and execute 90 depot reformats (vs prior guidance 80) in 2023. The group also plans to open c.10 new international depots in FY23E.

Andrew Livingston, Chief Executive said:

“Howdens performed well in the first half in a more challenging marketplace, making progress on the record year we delivered in 2022. Our trade-only, in-stock model is hard to replicate and compete with, and we are continuing to invest in our strategic initiatives to drive growth.

We are delivering value to our customers at all price-points as we continue to gain market share and we are well set up for further success in the second half, which includes our Autumn peak trading period. The combination of more local depots in convenient locations, an ever-stronger product line-up, first-class service and high stock availability, continues to represent a compelling proposition for our customers. While we are cautious about the short-term macroeconomic outlook for our markets, we remain confident that Howdens will make good progress in 2023 and our full year expectations are unchanged.”

Outlook

Despite the continued challenging macroeconomic backdrop, our builder customers remain busy, with activity levels normalising from the exceptional levels of a year ago. Across the Group, we are maintaining our focus on competitive pricing to support our customers, while balancing inflationary pressures to optimise volumes. Our inventory remains healthy underpinning our in-stock model and, in aggregate, is reducing in line with our expectations as we normalise the levels of safety-stock utilised during the pandemic.

In the current environment, we are maintaining a disciplined approach to managing our cost base to optimise operational performance, while leveraging our robust balance sheet to effectively implement our strategic initiatives. Our results are strongly second half weighted, given the Autumn peak trading period and, since the start of H2 overall revenue trends have been similar to the first half. We are on track with our plans for the business and our expectations for 2023 are unchanged. We remain confident of delivering growth ahead of our markets, while generating strong cash flow, and attractive returns for shareholders over the medium-term".

Source: Howdens & Stifel.

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