3rd Apr 2024 12:21
(Alliance News) - Analysts slashed profit forecasts for Topps Tiles PLC after first half sales fell but were split on the prospects for the firm's share price.
On Wednesday, Topps Tiles said sales in the 26 weeks to March slipped 5.9% to GBP122.6 million compared to the year before, as subdued retail demand offset a more resilient showing from trade customers.
Shares in Topps Tiles fell 3.9% to 42.30 pence in London on Wednesday.
In a trading update, the Leicester-based tile retailer said the weaker market, higher pay and seasonally higher energy usage would weigh on first half profit. Annual profit is expected to be weighted towards the second half.
The company said subdued demand in the domestic repair, maintenance and improvement sector, especially for bigger ticket projects, has persisted into 2024, resulting in lower footfall into stores.
But trade customers once again proved more resilient, although trade sales were also lower year-on-year, the firm said.
Topps Tiles said like-for-like sales were 11% lower year-on-year in the second quarter, driven by lower footfall and volume.
Liberum noted the drop in second quarter LFL sales was a "marked" step down from negative 7.1% in the first quarter, despite an easier comparative.
The broker said while online and commercial continue to perform well, the deterioration in core brand performance means it will cut its 2024 pretax profit forecast by 47% to GBP6.1 million.
"We have been long-term buyers of Topps, liking its leading UK market position, strong navigation through Covid, and attractive balance sheet, which supports a very robust dividend. However, it is difficult to see what drives the share price higher at this stage."
As a result, the broker downgraded Topps Tiles to 'hold' from 'buy' and more than halved its share price target to 40 pence from 90p.
Edison consumer analyst Russell Pointon reduced his 2024 profit forecast by 40%.
"For the individual businesses, the trends remain consistent with previous updates: strong revenue growth for Online Pure Play offset by weakness in Topps Tiles stores, and Parkside continues to see a significant improvement in its financial performance," he noted.
But he took a more optimistic view on the prospects for the share price, which looks "extremely undervalued."
"The company is well positioned for the upturn when it comes given its leading brand, breadth of product and customer service," Pointon commented.
By Jeremy Cutler, Alliance News reporter
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