---

Topps Tiles, a leading tile retailer in the UK, witnessed a significant dip in sales for the second quarter of 2024 as the UK’s RMI market faced subdued demand. The firm’s shares also experienced a decrease, with a warning that first-half profits could be affected.

---

Sales Dwindle Amid RMI Market Challenges

Topps Tiles reported a 5.9% dip in sales, amounting to £122.6 million for the half ending on 30 March 2024. This decline in sales is attributed to lower footfall, particularly amongst homeowner customers, resulting in an 11.3% year-on-year decrease in second-quarter like-for-like sales. This trend denotes a slump from the first quarter’s 7.1% fall, suggesting a challenging environment for the UK repair, maintenance and improvement (RMI) market and the wider home improvement sector.

Topps Tiles’ management pointed to a soft market backdrop, a sentiment echoed by other RMI market participants such as Travis Perkins and home improvement retail rivals Kingfisher and Wickes. This situation seemingly suggests UK homeowners are under significant financial pressure, curtailing their spending on home improvement projects, a trend starkly different from their spending habits during the Covid lockdowns.

Optimism Amid Sales Slump

Despite the disappointing sales, Topps Tiles’ gross margin saw an increase as the pressure on the cost of goods continued to alleviate. The retailer also noted resilience amongst its trade customers, despite a year-on-year decrease in sales from tradesmen. This resilience is further evidenced by the strong performance of the company’s pure-play online businesses, with first-half sales surging by 38.3%.

In particular, Pro Tiler and Tile Warehouse showed positive sales progress. Additionally, the commercial tiles arm, Parkside, seems to be on the road to recovery, with expectations of reaching breakeven during the first half despite a challenging commercial market. Topps Tiles remains optimistic, stating that the company, with its market-leading brands and specialist expertise, is well-placed to benefit from a cyclical recovery in the RMI market.

Brokerage firm Liberum Capital revised its recommendation from ‘buy’ to ‘hold’, citing the company’s disappointing performance. It also significantly reduced its price target for Topps Tiles from 90p to 40p.

While Liberum acknowledged the positive performances of Topps Tiles’ online and commercial ventures, it noted the deterioration in the core brand’s performance, leading to a 47% reduction in the projected full-year 2024 group pre-tax profit. This reduction significantly affects future years, creating considerable challenges for the firm in 2024.

However, Edison believes Topps Tiles’ shares are ‘extremely undervalued’. The firm maintains that Topps Tiles is well-positioned for the upturn when it comes, given its leading brand, product breadth, and excellent customer service.

View

While the falling like-for-like sales and deteriorating core brand performance bring certain challenges, Topps Tiles’ strong online performance, recovering commercial arm, and robust balance sheet present reasons for cautious optimism. As the market improves, the company has the potential to leverage its market-leading position, specialist expertise, and strong customer service to maximise market opportunities and emerge in a stronger competitive position. However, the current market conditions and the lack of positive tailwinds for the top line suggest a challenging journey ahead.