Topps Tiles’ profits have plummeted 15.5% in its latest trading report.
The retail giant revealed a drop in adjusted profit before tax to £18.6 million in the 52 weeks to September 30, compared with £22m in the year to October 1, 2016.
Sales also fell by 2.9% to £211.8m, compared with £215m in 2016.
Like-for-like revenue growth fell by 2.9% year on year, against 2016’s figure of 4.2%.
Gross margin decreased to 61.1%, compared with 61.9% a year earlier, which Topps Tiles claimed reflected pressure of the weaker pound. This was partly offset by underlying sourcing gains and its focus on a differentiated product offer, it said.
The retailer said it saw trade participation increase to 55% of total sales, compared with 52% last year. This was driven by growth of the trade loyalty programme and the trend for “do it for me”.
It’s ‘Rewards +’ trade loyalty programme saw a 35% increase, taking the total number of registered traders to 55,000.
The company said its core business strategy of “out-specialising the specialists” remains a key focus in the domestic tile market, where it claims to be the market leader.
It also revealed that this strategy had now been expanded into the commercial segment of the UK tile market, which accounts for around 45% of the total UK tile market.
Chief executive Matthew Williams said: “The business responded well to the more challenging trading conditions we experienced in 2017, maintaining tight control of costs to help offset the reduction in gross margin and continuing to make good progress with its strategic initiatives.
“Trading in the first eight weeks of the new financial year has improved, with like-for-like sales increasing by 3.2%. While we are retaining our prudent view of market conditions for the year ahead, we are encouraged by this return to like-for-like sales growth. We are confident that the combination of the significant further potential in our strategy of ‘out-specialising the specialists’ with our accelerated plan to grow in the commercial tile market will underpin our future success.”
Matt Walton, senior retail analyst at GlobalData, commented: “A challenging year for Topps Tiles is now over, where sales fell 1.5% to £211.8m as the reality of Brexit dampened consumer confidence and a year-on-year decline in housing transactions impacted performance. The fallout of Brexit also impacted Topps’ gross profit and margin, which declined 2.8% and 0.8 percentage points to £129.4m and 61.1% respectively. Improvements to product mix, such as exiting the low-margin wood flooring sector, helped somewhat counterbalance this decline.
“Trade now accounts for a greater proportion of Topps’ revenue, rising by 4.2%, and accounted for 55% of sales – with Topps acquiring Parkside Ceramics in August 2017 to form a new commercial division. The retailer has also developed its trade loyalty scheme, Rewards+, making it easier to use and improving the available rewards for its 55,000 members, an increase of 35% on last year. Given greater stability compared with consumer, Topps is right to gain greater traction among this customer.
“Topps has reported an encouraging start to its current financial year with like-for-like revenues up 3.2% for the first eight weeks, on a -0.3% comparative, as its focus on service and range in 2016/17 means it enters the year with a stronger offer. The retailer continues to invest in service, which has led to the customer service rating through its own mystery shopper scheme rising by 0.5 percentage points to 80.2%. It also plans to refresh all stores within the next two years and has launched a number of new exclusive ranges – Topps launched 45 new tile ranges during the year, which accounted for 9.2% of sales. Topps must continue to develop these new ranges to encourage more consistent footfall into its stores.
“The City has responded positively to the like-for-like sales growth to start its financial year 2017/18, with its share price rising by 7% in early trading. More stable exchange rates and Topps continued tight control on costs will support margins during this financial year. However, achieving a significant uplift in growth outside of its trade offer will be difficult, as shoppers remain cautious.”