Sales dip trips up Topps Tiles' shares

By This Is Money
Updated: 09:55 EDT, 1 June 2011

Shares in Topps Tiles were 6% in the red after recent sales stumbled and the firm conceded that customer spending was likely to come under ongoing pressure.

Topps spin: Robust performance in light of prevailing economic conditions and compared with sector peers

The floor coverings specialist said like-for-like sales were down 2.1% in the past seven weeks, compared with an increase of 1.8% over the six months to April 2.

It said the current trading figure was 'not significantly' different from expectations and the later part of the period offered more cause for encouragement.

Topps' stock fell 4p to 63.5p in trading today, as the company unveiled adjusted half-year pre-tax profit of £7.2m against £7.8m during the equivalent trading period a year earlier.

Group revenue was £89.2m, down from £91.4m before.

Chief executive Matt Williams said: 'I consider this to have been a robust performance, in light of the prevailing economic conditions and in comparison to our sector peers.

'We are encouraged with these results, which demonstrate growth in like-for-like sales and gross margin over the period, and are in line with management's expectations.'

The company grew market share to 25.5% from 24% a year earlier and said it would continue its expansion by adding eight new stores during the current financial year.

It ended the half year with 277 stores under the Topps Tiles brand and 36 trading as Tile Clearing House.

Looking ahead, the company said: 'The economic environment remains challenging for retailers and as a result we anticipate consumer confidence will continue to be subdued.

'Whilst we recognise that consumers are likely to continue to face ongoing pressure on spending levels, we are encouraged by the trading patterns we have seen over the first six months of this financial year.'

Topps announced a half-year dividend of 0.5p, on the basis that its conditions for resuming payouts – stable trading patterns and extending its existing lending facilities – had been met.

View from the City

Analysts warned low levels of housing transactions and consumer confidence remained a drag on Topps' short-term prospects.

Mark Photiades of broker Singer Capital Markets added: 'April trading conditions were clearly tough given the warm dry weather and we suspect the DIY sheds may well have picked up some share in this period.'

He expected current market estimates for profits of £17.3m in the year to September to be lowered as a result of today's guidance.

Retail analyst Kate Calvert of broker Seymour Pierce said it was sticking to its 'sell' recommendation, believing its target price of 60p and valuation was 'about right for a maturing retailer'.

'In addition, the housing market is expected to remain subdued; there is limited scope for material cost savings, and competition is intensifying both from the DIY sheds and the increasing number of home stores. Furthermore, following the closure of the Dutch subsidiary there is limited scope for overseas development,' she said.