5th Jul 2023 12:41
(Alliance News) - Topps Tiles PLC on Wednesday said it was on target to meet its annual profit guidance, following a strong sales performance in its third quarter.
Russell Pointon, a consumer analyst at Edison Group, said the trading update was "reassuring" given a wider sector context where demand remains "volatile" and profits remain "under pressure."
The Leicester, England-based tiles retailer said its sales had remained strong in the 39 weeks that ended July 1, with total sales growth for the year-to-date being 7.6% year-on-year.
The company said that gross margins in Topps Tiles had continued to improve sequentially quarter-on-quarter, as inflationary pressures on the cost of goods and shipping costs reduced.
Shares in the firm were 2.9% higher at 49.90 pence each on Wednesday morning in London. Over the past 12 months, the stock is up 24%.
"Topps Tiles was a Covid stay-at-home stock market winner thanks to the boom in DIY and home refurbishments while restaurants, bars and travel were out of reach. However, shares struggled during the economic reopening period and after the onset of war in Ukraine when cost inflation began to ramp up, putting pressure on margins and demand," explained Victoria Scholar, head of investment at interactive investor.
"As the headwinds in the supply chain, inflation and recruitment start to ease however and shipping and energy costs came down, Topps Tiles has enjoyed some support once again, allowing the retailer to confirm its annual profit expectations."
Topps Tiles said it remains confident that its adjusted pretax profit in the second half of its financial year will be "materially higher" than the first half. It expects to perform in line with market expectations for the year as a whole.
Current market expectations for adjusted pretax profit in financial 2023 are within a range of GBP11.3 million to GBP12.3 million, with consensus at GBP11.8 million, Topps Tiles said.
Adam Tomlinson and Wayne Brown, analysts at Liberum, also left their own guidance numbers unchanged in the wake of the company's update.
Liberum sees full-year adjusted pretax profit at GBP11.3 million for financial 2023. This would be down 28% from GBP15.6 million in financial 2022, if achieved.
The broker rates Topps Tiles at 'buy' with a price target of 100.00 pence. It explained the target price was supported by its discounted cash flow analysis, based on "prudent forecasts", a weighted average cost of capital of 8.0% and a "cautious" long-term growth rate of 2.0%.
"There is good valuation support from the group's balance sheet strength, trading momentum and ongoing market share gain potential," Liberum added.
Topps Tiles is a corporate broking client of Liberum.
By Heather Rydings, Alliance News senior economics reporter
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