Topps full year sales decline, but outlook is encouraging

Earlier today, the UK's largest tile specialist Topps Tiles, announced its annual financial results for the 52 weeks ended 30 September 2017.

Financial Performance

• Sales of £211.8 million (2016: £215.0 million).  Like-for-like sales decline of 2.9% (2016: +4.2%)
• Gross margin decreased to 61.1% (2016: 61.9%) reflecting pressure of weaker sterling which was partly offset by underlying sourcing gains and our focus on a differentiated product offer
• Adjusted profit before tax of £18.6 million, a decrease of 15.5%
• Final dividend of 2.30 pence per share (2016: 2.50 pence per share), making a total for the year of 3.40 pence per share (2016: 3.50 pence per share)
• Net debt at period end increased to £27.5 million (2016: £24.8 million)

Strategy Update

• Core business strategy of "Out-specialising the Specialists" remains key focus in the domestic tile market, where Topps is market leader 
• Growth strategy expanded into the commercial segment of the UK tile market (c. 45% of total UK tile market) 
• Parkside Ceramics, a small business which specialises in the supply of tiles into the commercial segment acquired during the period for £1.1 million
• Parkside to form the basis of a new Commercial division - plans in place to invest c.£1 million in the year ahead into capabilities to drive longer term growth

Operational Performance

• Trade participation increased to 55% of total sales (2016: 52%) driven by growth of the trade loyalty programme and trend for "do it for me"
• Digitisation of "Rewards +" trade loyalty programme enhancing offer to trade customer base - 55,000 traders now registered and spending, a 35% increase
• Sales continuing to benefit from new product development - 9.2% of tile revenues generated from ranges launched in the last 12 months (2016: 12.6%)
• Active management of store portfolio - 26 new openings and five closures in the period, resulting in a net 21 new stores.  Between five and 10 net new openings expected in current financial year

Current Trading and Outlook

• The Group is now trading from 372 stores (2016: 352 stores)
• In the first eight weeks of the new financial period, Group revenues, stated on a like-for-like basis, increased by 3.2% (2016: decrease of 0.3%)

Commenting on the results, Matthew Williams, Chief Executive said: "The business responded well to the more challenging trading conditions we experienced in 2017, maintaining tight control of costs to help offset the reduction in gross margin and continuing to make good progress with its strategic initiatives.  

"Trading in the first eight weeks of the new financial year has improved, with like-for-like sales increasing by 3.2%.  While we are retaining our prudent view of market conditions for the year ahead, we are encouraged by this return to like-for-like sales growth.  We are confident that the combination of the significant further potential in our strategy of "Out-specialising the Specialists" with our accelerated plan to grow in the commercial tile market will underpin our future success."

Analysis and commentary

The following comment has kindly been provided to Insight DIY by Fiona Cincotta, the Senior Market Analyst at https://www.cityindex.co.uk/

“The outlook statement is surprisingly encouraging, with a healthy rise in like-for-like sales in the first few months of the year marking an end to the deterioration that was evident throughout the entire year last year.

Investors will no doubt lap that up, though they shouldn't get too carried away. Consumer confidence remains on shaky ground, so it's likely that many DIYers will hold back on big-ticket renovations until there is more clarity on Brexit negotiations.

That said, these pleasing early sales figures indicate efforts to expand the range and improve customer service are gaining some traction. It's still early days, though, and it's clear management isn't getting too carried away either: they've cut the final dividend by 8% after having increased it at the half-year point.”

Source: Insight DIY Team & Topps Tiles Press Release.

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