Topps reports fall in revenue as outlook weakens

Topps Tiles Plc, the UK's largest tile specialist, has this morning announced its interim results for the 26 weeks ended 1 April 2017. Total revenue for the period declined 1.3%, 1.9% on a like for like basis, whilst operating profit declined 3.8% to £10m.

The full press release can be downloaded here.

 Financial Highlights

• Solid performance in a more challenging market and against strong comparatives from 2016 when sales benefited from changes to Stamp Duty, resulting in total sales decline of 1.3%, with like-for-like sales decline of 1.9%.
• Gross margin of 61.2% (2016: 61.5%), underlying gross margin broadly in line with the prior year (excluding the impact of double running costs linked to the introduction of the new Rewards+ trade loyalty scheme).
•  Adjusted profit before tax of £10.1 million (2016: £10.3 million).
• Cash generated by operations (excluding movements in working capital) of £13.7 million (2016: £13.8 million).
• Net debt reduced by £1.8 million year-on-year to £26.6 million.
• Interim dividend increased by 10% to 1.1p (2016: 1.0p) reflecting the Board's confidence in the longer term outlook.

Operational Highlights

• Net eight new core stores opened during the period delivering strong performance and returns, with 359 stores trading at period end (2016: 342 stores).
• Further c.10 new stores planned for H2, with maturity target of 450 UK stores.
• Continued new product development - 10.2% of tile revenues generated from ranges launched in the last 12 months (2016: 8.7%).
• Successful launch of new employer brand - job applications up 40% compared to prior year.
• Trade sales increased to 53.6% of total (2016: 51.0%) driven by accelerating "do it for me" trend and growth of new Rewards+ trade loyalty scheme.

 Current Trading & Outlook

• Trading in the second half to date has, as expected, been more challenging as a result of a weaker macro environment this year and a continuation of the particularly strong comparatives from the prior year when sales were boosted by changes to Stamp Duty. 
• Like for like sales over the 7 weeks to 20 May 2017 (adjusted for the impact of one less trading day resulting from the effect of the later Easter in 2017) decreased by 5.8%⁶ (2016: increased by 8.4%).
• Taking a prudent view of the second half outlook, Management expect pre-tax profits for the full year are likely to be towards the lower end of the range of market expectations⁷.

Commenting on the results, Matthew Williams, Chief Executive said:

"Our results for the first half reflect the more challenging macro-economic environment we have traded through so far in 2017 and the strong performance we delivered in the corresponding period in 2016 when housing transactions were boosted ahead of the changes to Stamp Duty.  While these tougher comparatives begin to ease from the end of June, the key macro indicators for our market are weaker year-on-year and we are taking a prudent view of the second half prospects.  

"Against this background, we remain confident in the longer term outlook for the business, as evidenced by the 10% increase in the interim dividend.  We will continue to focus on executing our proven strategy of "Out-Specialising The Specialists" and to invest in important sources of future growth.  In particular, our recently completed analysis of the UK commercial tile market has confirmed it as attractive and we are now evaluating a number of small acquisition opportunities to increase our reach into this part of the market."

Source: Insight Team & Topps Tiles Press Release 

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Notes

¹ Like-for-like sales revenues are defined as sales from stores that have been trading for more than 52 weeks.

² Adjusted operating profit is adjusted for business restructuring costs of £0.2 million and loss on disposal of plant, property and equipment of £0.4 million.  The prior interim operating profit was adjusted for business restructuring costs of £0.4 million, and loss on disposal of plant, property and equipment of £0.1 million. 

³ The prior year adjusted profit before tax was adjusted for the effect of the items above plus £0.2 millionnon-cash gain relating to forward currency contracts the Group (defined as Topps Tiles Plc and all its subsidiaries) has in place (per IAS 39).

⁴ Adjusted for the post tax effect of the above items.

⁵ Net debt is defined as bank loans, before amortised issue costs (note 6) and less cash and cash equivalents.

⁶ Current trading LFL sales growth was impacted by one less trading day due to the later Easter in 2017.  We estimate this decreased LFL sales growth in the seven week current trading period by c.1.0% and have adjusted accordingly.

⁷ The range of market expectations for adjusted profit before tax for the year ended 30 September 2017 is £21.0m to £22.1m.