Wickes screws down costs as earnings hammered

Wickes head office has been the focus of major cost-cutting over the past few months as home improvement bargain hunters unexpectedly stayed away from the kitchens and bathrooms shed in 2018.

The mass-market showroom retailer said weaker-than-expected consumer confidence at the start of the year, exacerbated by the cold weather in March and April, had forced it to implement a major cost-reduction plan that reduced headcount in its head office by a third.

It also said branch staffing levels “are being carefully controlled to match trading volumes”.

Yet, only a month ago Wickes said demand for its kitchen and bathroom design and installation offering was so strong it planned to employ another 150 design consultants and 750 fitters across the business.

At the time, Fraser Longden, HR and operations director at Wickes, said: “We believe that the demand and growth in this area represents a multimillion-pound opportunity, and a bolstered team will help us tap into this, becoming the go-to brand when it comes to choosing a new kitchen or bathroom.”

But there was no mention of this recruitment drive as Wickes owner Travis Perkins said sales at the DIY chain had dropped 7.7% on a like-for-like basis over the six months to end of June, while operating profit – excluding exceptional charges and expenses – declined by £14 million.

This had a heavy impact on Travis Perkins’s consumer division, which reported a 35.6% drop in operating profit from the previous year, excluding that booked by property sales. Adjusted operating profit fell to £29m in this division, which includes Toolstation, on a 1.8% decline in total sales to £807m.

Travis Perkins said gross margin at Wickes was squeezed as cost inflation could not be recovered through pricing because of competitive pressures and “an adverse sales mix in the period”. It said it would recognise a £246m impairment charge against the goodwill in Wickes.

Travis Perkins chief executive John Carter said: “Our trade-focused businesses in general merchanting, contracts, Toolstation and plumbing and heating achieved good sales growth despite experiencing a volatile first half.

“These businesses exited the period with encouraging momentum and, supported by a continued focus on cost, they remain on track to deliver modest profit growth for the full year.

“Our consumer-focused business, Wickes, has had a far more challenging period as weaker consumer spending trends, combined with a difficult competitive environment, have held back profitability.

“Consequently, the Wickes team is executing a significant cost-reduction programme. While these savings will help drive improved profitability through the second half of the year, Wickes’ profits will be lower than previously expected.

“Against a backdrop of changing market conditions, which are expected to continue for the foreseeable future, the group has commenced a comprehensive review of its business, with a view to driving stronger performance and enhanced value for shareholders in the medium term.”

Weak showroom sales at Wickes weighed on the wider Travis Perkins business, with total operating profits, excluding profits from property sales, down 11.5% on 2017 to £162m.

The firm blamed a shift in the sales mix between businesses, with very strong growth in plumbing and heating, and a significant decline in Wickes.

Travis Perkins said the long-term drivers of market growth were favourable, centred on the UK’s requirement for more homes and the underinvestment in the repair, maintenance and improvement of existing homes and other infrastructure.

But in the short-term, the firm said flat mortgage approvals and housing transactions, inconsistent house price growth across the UK, depressed consumer confidence and continued pressure on wider retail sales made it difficult to predict volumes in the near time.

Though it said recent trends would indicate that the trade markets are performing more consistently than consumer markets.

“Given the current mixed market outlook, the group continues to focus on achieving a good balance between tightly controlling the cost base and maximising efficiency, while maintaining the strong trading propositions put in place in recent years.

“This balance is flexed for different businesses across the group, depending on end market conditions and potential future growth,” it said.

Given the first-half performance for Wickes in a challenging DIY market, Travis Perkins said it now anticipates that 2018 earnings will be between £360m and £390m – in the lower half of the range of analyst expectations.

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