23rd Mar 2023 14:36
(Alliance News) - Wickes Group PLC reported a drop in annual profit on Thursday, amid higher costs, and for AJ Bell's Russ Mould this indicated that the lockdown home improvement "frenzy" has calmed down.
The Watford, Hertfordshire-based home improvement retailer said pretax profit fell 38% to GBP40.3 million in 2022 from GBP65.4 million in 2021.
Adjusted pretax profit declined 11% to GBP75.4 from GBP85.0 million. This was in line with the GBP72 million to GBP76 million market consensus that the company at the end of January had said it expected to achieve.
Revenue grew 1.8% to GBP1.56 billion from GBP1.53 billion. Cost of sales outpaced revenue growth, however, increasing by 2.6% to GBP991.9 million from GBP966.4 million. As well, administrative expenses increased 14% to GBP155.5 million from GBP136.8 million.
Russ Mould, investment director at AJ Bell said: "There are definite signs the home improvement frenzy prompted by people spending lockdown looking at tired old fixtures and fittings has slowed. Wickes may have reported record sales for 2022, but profit was down as it was hit by higher costs."
Mould said that Wickes has used innovations like 30-minute click-and-collect and buy now pay later options to keeps sales "afloat" in 2022, as well build its market share.
However, the AJ Bell analyst warned that using buy-now pay-later on a larger scale could introduce "fresh risks" into the business at a time when sales are already starting to drop off in 2023.
"People's budgets are less likely to stretch to home renovation projects which are becoming less affordable thanks to inflationary pressures, plus a slowdown in the housing market will diminish one of the key drivers for do-it-yourself and do-it-for-me business," he cautioned.
Nonetheless, Wickes said trading in the first 11 weeks of 2023 has been in line with its own expectations, though core sales are "moderately behind" the same period a year ago. It added that trade sales in growth and DIY continue to normalise.
Looking ahead, Chief Executive Officer David Wood said: "Like all businesses we remain watchful of the external consumer environment. However, we have the right strategy and a compelling offer for customers, and look to the future with confidence. We will continue to invest across our distinctive growth levers, and are well-placed to achieve further market share gains."
Wickes declared a final dividend of 7.3 pence per share, down 17% from 8.8p a year prior. The total year dividend of 10.9p per share was unchanged, however.
For analysts at Liberum, Wickes full-year results "once again" demonstrated the benefits of Wickes' "balanced, omni-channel model", through evidence of continued market share gains, which it said was proving to be a more stable underlying market than "many might have feared".
It noted two main points of read-across from DIY retailing peer Kingfisher PLC's recent results: one, that Wickes continues to outperform its peer, and two, that the underlying market remains resilient.
Liberum said that in Wickes' fourth quarter, the company reported core like-for-like sales growth 5.2% year-on-year. This compared to Kingfisher's UK & Ireland fourth quarter growth of 0.2% year-on-year.
"Wickes' continued outperformance reflects its balanced model across Trade/DIY/DIFM and leading omni-channel customer proposition," the investment bank commented.
Further, Liberum noted that Wickes' underlying market remains resilient.
"Kingfisher notes February group like-for-like sales are up 0.5% year-on-year, with the main driver being a good performance in UK & Ireland, with sales growth at both B&Q and Screwfix...This demonstrates the continued resilience of the UK RMI market - a trend which we expect to see continue in the months ahead."
Shares in Wickes were down 1.0% at 143.50 pence on Thursday afternoon in London, a price Liberum analysts called "very cheap". Meanwhile, shares in Kingfisher were down 2.8% at 263.70p. Over the past 12-months, Wickes is down 17% while Kingfisher is up 0.8%.
By Heather Rydings, Alliance News senior economics reporter
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