Topps Tiles Earnings Call: Strong Growth Amid Challenges

Topps Tiles ((GB:TPT)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call for Topps Tiles highlighted a strong financial and strategic trajectory, with notable achievements in digital and trade sales. The acquisition of Fired Earth was a significant milestone, although challenges remain, particularly with the CTD acquisition and rising operating costs. Despite these hurdles, the overall sentiment was positive, with the highlights outweighing the lowlights, suggesting a promising outlook for the company.

Mission 365 Progress

Topps Tiles has made substantial progress towards its Mission 365 goal, achieving 40% of its target to reach GBP 365 million in sales with an 8-10% net margin. This growth is underpinned by five key areas of opportunity, with strong performances in trade and digital sales being particularly noteworthy.

Strong Financial Performance

The company reported an adjusted pretax profit of GBP 9.2 million, marking a 46% increase year-on-year. This financial strength enabled a 21% increase in dividends, while the gross margin saw an improvement of 50 basis points compared to the previous year.

Pro Tiler Expansion

Pro Tiler has been a significant growth driver, with sales increasing by 27% in the second half of the year, contributing to a total of GBP 35 million in sales. This marks a tripling of sales since its acquisition, underscoring its strategic importance.

Digital Sales and Trade Growth

Digital sales have grown impressively, with penetration increasing to over 21% from 18.5% last year. Trade sales have also seen a robust growth of 13.3%, now making up 69% of overall sales, highlighting the company’s strong market position.

Positive Outlook for CTD

CTD stores have been successfully integrated and are showing consistent like-for-like growth. A strategic plan is in place to bring CTD into profitability by FY ’26, reflecting a positive outlook for this segment.

Fired Earth Acquisition

The acquisition of the premium brand Fired Earth is set to broaden Topps Tiles’ customer base and enhance digital penetration, aligning with the company’s strategic objectives.

CTD Acquisition Challenges

The CTD acquisition has faced challenges, including a CMA investigation that necessitated the disposal of four stores. This has impacted financial performance, with GBP 2 million in advisory costs and GBP 3.2 million in one-off expenses.

Increased Operating Costs

Operating costs have risen by GBP 5.7 million, a 4.7% increase year-on-year. This is attributed to regulatory challenges, National Living Wage increases, and higher performance-related pay.

Modest Outflow in Working Capital

There was a modest outflow in working capital, driven by higher levels of receivables, resulting in a GBP 5.4 million cash outflow in the CTD business.

Tile Warehouse Loss

Tile Warehouse experienced a modest trading loss during the year, but it is projected to break even by FY ’26, indicating a potential turnaround.

Forward-Looking Guidance

CEO Rob Parker outlined the company’s strategic progress towards Mission 365, with a 46% increase in adjusted pretax profit and a gross margin improvement to 53.8%. The company maintains a net cash position of GBP 7.4 million. The CTD business, despite current challenges, is expected to become profitable by FY ’26, contributing to a diversified sales strategy. New CEO Alex Jensen emphasized priorities such as sustainable profitability for CTD and Tile Warehouse, accelerating digital capabilities, and reinforcing Topps Tiles as a leading destination for hard surface projects.

In summary, the earnings call for Topps Tiles painted a picture of a company on a strong upward trajectory, with significant achievements in digital and trade sales. While challenges remain, particularly with the CTD acquisition and rising costs, the overall sentiment was positive, suggesting a bright future for the company.