Wickes builds market share as uncertainties mount

  • A sharp increase in the interim payment
  • Gross margin contracts on inflation and sales mix

The primary consideration for investors in Wicks (WIX) it’s the extent to which runaway inflation will affect demand for its home maintenance, repair and improvement products. Some of this will come down to necessity. The need to fix a leaky downspout is not the same as the desire to repaint an architrave; only the latter falls under the general heading of “discretionary spending.” But with inflation running high, will the likes of Wickes see a sharp drop in demand from homeowners, thus erasing some of the windfall profits that accrued during periods of shutdown?

The group’s latest half-year figures suggest sales may be holding up better than expected, although its business trends are certainly open to interpretation. Wickes raises the possibility that the shift to hybrid work patterns is “increasing time spent at home, fueling a greater desire from homeowners and renters to invest in their properties.”

It is a good theory, although difficult to support from an empirical angle. In fact, the last of the group state of mind of the nation The survey points to a “moderate slowdown in home improvement demand from its post-Covid levels,” even though business demand remains strong. We’re not sure if the term “moderate” is particularly apt.

Like-for-like sales (LfL), those from established outlets, increased 0.8 percent over the period; a pretty nice result given the hard comparators. But it’s worth remembering that LfL sales for the year ending January 1, 2022 were up 13.0% from 2020 and 18.6% from 2019. Realistically, shareholders should even take heart if Wickes keeps a relatively modest portion of its sales. received during closures, extraordinary circumstances by any measure.

Management admits that overall market volumes have decreased due to macroeconomic problems, but also maintains that the group’s core market share has increased. Rising inflation contributed to a 70 basis point reduction in gross margin, along with a higher proportion of lower-margin TradePro sales. Steady digitally-enabled sales growth is supposed to help support margins in the long run.

The fact that their “customers are becoming more price-sensitive and looking for more” is hardly surprising, but the real test will come once the northern winter hits, putting even more pressure on household budgets. A low forward rating of 5x adjusted consensus earnings and a double-digit forward dividend yield suggests the market does not share management’s faith in Wickes’ end markets, but the sell-off since the start of the year looks extreme given that Wickes continues to increase market share, even if that amounts to a bigger slice of a shrinking pie. To buy.

IC Last Seen: Buy, 200p, Jun 09, 2022

ORDER PRICE: 123p MARKET VALUE: £319 million
PLAY: 122-123p MAXIMUM OF 12 MONTHS: 254p LOW: 111p
NET ASSET VALUE: 65p NET DEBT: £559 million
Semi-annual to July 02 Turnover (millions of pounds sterling) Profit before tax (millions of pounds sterling) Earnings per share (p) Dividend per share (p)
2021 812 35.7 13.5 2.10
2022 822 33.5 10.7 3.60
% change +1 -6 -twenty-one +71
Former division: September 29th
Payment: November 04

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