Travis Perkins PLC has reported on 2018 trading, advising of a ‘solid performance’ against a market backdrop of considerable uncertainty. Group sales growth was strong, with overall growth of 4.8% to £6,741m, and growth of 4.9% on a like-for-like basis.
Consumer Division performance (Wickes, Toolstation and Tile Giant)
Wickes – Financial Performance
Wickes revenues declined by 2.5% in 2018, and by 4.4% on a like-for-like basis. The UK DIY market environment has been extremely challenging, driven by the wider macro environment, with declining consumer confidence, and through competitive pricing pressure. The first half was particularly difficult, with poor weather conditions in March and April impacting the Easter trading period.
The negative sales impact was felt across the business, but with Kitchen & Bathroom (K&B) showroom sales being hard hit in H1, partially in response to the poor promotional period in Q4 2017 and also reflecting a challenging retail environment. Delivered K&B sales reduced by 10% in the first half of the year.
In the second half of the year, K&B “leads activity” strengthened in response to improved promotional activity in Wickes, and through competitor decisions to exit the design & install service for end-consumers. This activity began to develop into improved sales in Q4, and sets the business up well heading into 2019. Selective price investments in specific core DIY categories, combined with early signs of the competitive price pressure easing, helped to drive positive sales growth in H2, with an encouraging trend throughout Q4.
Adjusted operating profit declined by 19% in the year, but this was split between a 39% decline in H1, followed by 15% growth in H2. This recovery can be attributed mainly to the level of cost reduction that was achieved in the year, with significant reductions in central support services, reduction in shrinkage and efficiency gains in the distribution network, as well as the improved trading in Q4.
Gross margins declined in the year, driven by sales mix, as K&B sales declined more than core sales in H1, and due to the competitive pricing environment. This was more than offset in H2 by the cost reduction actions that were undertaken.
Pricing in the UK DIY market was extremely competitive through the year, with Wickes making targeted investments in price in certain categories to drive volume. This was successful, particularly in core categories in the fourth quarter of the year, but had a detrimental impact on gross margins. The competitive pressures began to ease towards the end of 2018 and market pricing became more rational.
The Wickes TradePro scheme was launched 18 months ago, and has been well received by customers. Giving a 10% discount on all purchases, it is a simple mechanism for customers to understand, and is improving customer loyalty, helping to support core sales through 2018. In 2019 the digital experience for trade customers will be enhanced, giving access to the discount for online transactions to drive higher participation. A further 24 store refits were completed in 2018, bringing the total number of stores in the modern format to 121. The proportion of Kitchens sold with a full installation service increased to 54% (up from 44% in 2017), reflecting the high-quality turnkey service provided to end consumers.
Discover how Toolstation performed, here
Learn more about Travis Perkins’ Group Performance, here
For the next financial year, Wickes and Tile Giant will be reported as a Retail segment, with a different operating model from the merchant businesses, with fixed ranges, and a fixed, national price framework. The retail businesses primarily target retail consumers, both through traditional methods and increasingly by providing end-to-end Do-It-For-Me services from design to installation, particularly in Kitchens and Bathrooms.
John Carter, Chief Executive Officer, commented:
“The Group delivered a solid performance overall in 2018 despite a challenging market backdrop. We took concerted self-help actions during the year, and the benefits of this cost reduction, together with improved trading, drove an improved profit performance in the second half of the year.
“In December 2018, we set out our intention to focus on delivering best-in-class service to trade customers and to simplify the Group. To that end, removing the divisional structure within Merchanting will enable an increased focus on customers at a business unit level, speed up decision making and, at the same time, reduce costs.
“In the longer term, the Group remains focused on generating sustainable profitable growth for shareholders and we will achieve this by allocating capital and resources to our most advantaged businesses. We are making good progress on the preparation for the disposal of the Plumbing & Heating division, and are seeing an encouraging improvement in trading and good momentum in Wickes.
“Whilst we remain positive about the long-term outlook for our end markets, we are planning for uncertain market conditions to continue in the near term. The Group remains focused on self-help actions to underpin performance in the near term, whilst continuing to invest for the future.”
Source : Insight DIY & Travis Perkins Plc