Yahoo Finance DIY downturn delivers £360m hit to Travis Perkins
Householders unwilling to splash out on major DIY projects coupled with uncertainty in the property market have prompted Wickes-owner Travis Perkins to warn that its profits for the year will be at the lower end of forecasts.
Interim results for the building supplies, plumbing equipment and home-improvement business revealed consumers were continuing to tighten their belts. Sales at consumer division, which includes the Wickes DIY chain and Toolstation trade supplier, fell 1.8pc to £807m in the six months to the end of June, though on a like-for-like basis the drop was 4.2pc.
Travis Perkins has previously warned the public was reining in spending, and said that poor weather in March and April compounded this, as building projects were put off. Consumers are also wary about spending on big-ticket items, such as kitchens and bathrooms.
However, the situation has become so serious chief executive John Carter has launched a comprehensive review of the business, with current market conditions expected to continue for the “foreseeable future”.
“Wickes has had a far more challenging period as weaker consumer spending trends, combined with a difficult competitive environment, have held back profitability,” he said.
“Consequently, the Wickes team is executing a significant cost-reduction programme. Whilst these savings will help drive improved profitability through the second half of the year, Wickes’ profits will be lower than previously expected.”
Shares in FTSE 250-listed Travis Perkins fell almost 12pc to £11.80 on the news, wiping more than £360m off the company's market value.
While attention was focused on the consumer business, Travis Perkins reported a rise in group revenues of 4.4pc at £3.4bn, though it fell to a £123.4m pre-tax loss from a £167.4m profit for the same period last year. This was largely the result of a £246m goodwill impairment against Wickes, with restructuring costs also having an impact.
The other parts of the business performed better. General merchanting, the company's largest division and which supplies builders, reported sales up 0.9pc at £1.1bn, plumbing and heating - which was restructured last year - was 15.5pc better at £774m, and the contracts business, which supplies larger builders, saw sales rise 6.4pc to £718m.
Mr Carter tried to put a positive spin on the business, saying “long-term drivers of market growth remain strong, centred on the UK's requirement for more homes and under-investment in the repair, maintenance and improvement of existing dwellings”.
Deutsche Bank analysts said Wickes and “broader weakness of UK consumer sentiment" were a "key uncertainty” for Travis Perkins, but added that problems seem to be isolated within just one unit.
Analyst Priyal Mulji said: “Almost all of the issues raised have originated from Wickes. Although there was a big miss in this, it was already known to be one of the highest risk businesses given its exposure to the challenging DIY market. The performance of the other generally more trade-focused businesses has been robust.”
Matt Walton of GlobalData said: "The review will be completed in December, and Travis Perkins may be looking to offload Wickes by that time, with private equity the most likely option.''
