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Topps Tiles Interim Results

Total +6.4% (£104m)
LFL +5.3% (2014: +10.2%)
All results for the 26 weeks ended 28 March 2015.

Our analysis
This is a pleasing set of results from Topps Tiles, which has managed to maintain positive momentum against some strong comparatives. As part of this, the tile specialist has seen LFLs up 5.3%, and pre-tax profit up 13.8% to £9.1m. Topps Tiles is starting to feel the benefits of a healthier economic backdrop, with a more buoyant housing market encouraging consumers to complete home improvements. Moreover, the retailer has been proactive in its own approach over the past few years, seeking to widen its appeal among both consumers and tradesmen.

A rise in disposable incomes is beginning to bring some benefits to the wider home improvement market, helping to drive demand from new homeowners amid an increase in housing transaction volumes, as well as from existing homeowners now feeling the confidence to undertake larger scale improvements to the home. However, interest in DIY among the British consumer continues to wane, with a growing tendency for consumers to use tradesmen to complete work. As can be seen from some of the wider struggles at DIY specialists, such as Homebase, retailers operating in this market have had to make fundamental changes in order to remain both relevant and competitive.

In recognising these fundamental shifts in the market, Topps continues to make changes to its business in order to broaden and improve its appeal, as well as to increase authority in the tiling category. An example of this is investment into ranges, and here Topps has introduced over 70 new ranges over the year, with the focus being on introducing on-trend designs. The retailer has also made improvements to its natural stone and small tile ranges.

Topps has also made further changes to its shopping experience. One of the most noticeable improvements has been the refresh of all of its stores, both internally and externally, with more modern branding. Topps has also launched a new online tile visualisation tool enabling customers to view tiles in room settings in the home.

While multichannel continues to grow in relevance, its stores remain the dominant channel, with nearly all (99%) of consumers visiting a store at some stage of the purchase journey. Over the period, the retailer opened a net five new stores, bringing its total portfolio to 340 outlets. It also continues to roll out its newer and smaller boutique fascia. This was trialled in five London stores, with this format also recently rolled out to further stores such as its outlet in the upmarket St John’s Wood. The retailer has stated its aims to be trading from 12-13 of these boutique stores by year end, while it is also trialling a larger boutique format which will hold some limited amounts of stock. Topps has not neglected online, and has introduced a new checkout process and inspiration areas for tile selection, recognising its website as an important complementary part of the purchase journey.

While many of these changes appeal to the personal consumer, the retailer has actually made many of these changes with tradesmen in mind, looking to tap into the ‘do it for me’ trend sweeping the country. This has seen trade sales grow to 48.3% of total sales, up from 44.0% last year. Spearheading this has been its rewards programme for trade customers, and this now has over 9,000 active traders on its books. The larger boutique stores are also helpful to tradesmen, as they have small amounts of stock available for collection. While the retailer is right to tap in to this end of the market, its gross margin over the period fell to 60.7% (60.8% 2014), which it states is due to the growth in the trade market and the lower margins offered.

Overall, this is a positive set of results for Topps Tiles. It is outperforming the wider DIY market and looks primed for further gains. While many of its heavy-DIY rivals have suffered from their lethargic growth strategies, and indeed inability to make major changes to large stores, Topps has benefitted both from its more nimble smaller store format, and proactive changes in recognition of shifting consumer and market dynamics. However, challenges remain; both from growing competitive threats –from the DIY sheds, as well as specialist rivals such as Tile Giant and the value-focused Tile Mountain – and lingering concerns over the sustainability of the economic recovery. With the result of the election now confirmed, retailers will be hoping consumer confidence continues its upward trajectory and, if this is the case, we believe Topps Tiles should be a benefactor of this trend in the months to come.

Source: Conlumino Viewpoint

May 2015

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