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Wickes: Digital Strength Underpins Strong First Half Performance

Wickes Store Image

Wickes Group plc has published Interim Results 2021 for the 26 weeks period to 26 June 2021, advising of a strong first half performance driven by digitally-led, service-enabled proposition. 

Financial Highlights

  • Revenue growth up 33.1% on a like-for-like basis*, and 22.4% on 2019, driven by strong Core performance
  • Adjusted profit before tax increased to £46.5m**, ahead of guidance of around £45.0m
  • Reported profit before tax increased to £35.7m, reflecting demerger and IT separation costs
  • IFRS net debt reduced by £100.2m to £564.8m compared to the Prospectus pro-forma opening position driven by strong trading performance and cash generation
  • Capital investment and IT separation costs are weighted to the second half of the year and working capital benefit will partially unwind
  • First Wickes Group plc interim dividend declared of 2.1p
  • We now expect to deliver full year adjusted profit before tax towards the upper end of market expectations 

Operational Highlights

  • Digital strength and capability continues to underpin performance with strong retention and growth of active digital customers; two thirds of sales driven by digital channels
  • Further market share gains in Core across both DIY and local trade across a broad range of categories, driven by the strength of the digital proposition and supported by new ranges
  • Resilient performance in DIFM (Do-it-for-me) with showrooms closed through to 12 April and 1m interactions with our newly developed virtual showroom journey within six weeks of launch
  • Further growth in the Wickes installer base, with wider market issues driving an extension of lead times from order to completion
  • Successfully navigating Covid restrictions and supply chain challenges 

Summary financial results

£m

26 weeks to 26 Jun 21

26 weeks to 27 Jun 20

Change

Revenue

Core

DIFM

812.0

666.7

145.3

612.7

491.8

120.9

32.5%

35.6%

20.2%

Gross profit

Gross profit %

294.8

36.3%

225.9

36.9%

30.5%

Adjusted** operating profit

Adj operating profit %

61.9

7.6%

30.9

5.0%

100.3%

Adjusted** profit before tax

46.5

14.5

220.7%

Adjusted** basic earnings per share

14.6p

4.7p

 

Reported operating profit

Operating profit %

51.1

6.3%

10.9

1.8%

368.8%

Reported profit / (loss) before tax

35.7

(5.5)

 

Basic earnings / (loss) per share

13.5p

(0.8)p

 

Interim Dividend

2.1p

n/a

 

Current Trading & Outlook

As expected, Core performance has moderated as we annualise tough 2020 comparatives, however we continue to see strong year on two year growth driven by notably buoyant demand from local trade and underpinned by our digital capability.

Following the re-opening of our DIFM showrooms on the 12 April, ordered sales grew strongly through May and June. Over the summer, DIFM orders have since settled back to be broadly in line with 2019.

The well-documented demand for installers, and in particular the builders that many wider projects are dependent upon, combined with ongoing product supply restrictions, means lead times to project completion have extended. This will result in a higher carry over order book into next year which will benefit financial year 2022. 

Given the strong outlook for Core and DIFM trends, together with half year results which delivered adjusted Profit Before Tax £1.5m ahead of guidance, we now expect adjusted Profit Before Tax for the full year to come in towards the upper end of analyst expectations (range £67-£75m). This assumes no further significant change as a result of Covid disruption or restrictions. 

David Wood, Chief Executive, commented: 

"This is a strong first half performance underpinned by our attractive digitally-led, service-enabled proposition. In our first set of results since demerger, we have delivered an increase in sales and profits as we continue to help the nation feel house proud.

As a business we have responded well to the increase in demand across our three routes to market, supporting all our customers. I would like to thank each of my colleagues for their continued hard work and support. 

In Core we have gained further market share driven by the strength of our proposition and DIFM has been remarkably resilient despite showrooms being closed through to April. 

Throughout this period, our strong relationships with suppliers means that we have navigated inflationary pressures and raw material constraints well - and this remains the case. We continue to provide customers with the products and services they need at the best possible value. 

Turning to the wider home improvement market, external factors continue to indicate strong growth opportunities. An ageing housing stock, continued property transactions and growing consumer confidence are all driving customers to improve their homes. In addition, the increased time spent at home has fuelled the desire to renovate and refurbish - not only from homeowners - but also amongst rental tenants and the millennial generation. 

While the immediate external environment remains volatile, we look to the future with confidence. We expect to deliver a full year adjusted Profit Before Tax towards the upper end of expectations, and beyond that, we have the right business model to win over more customers and capitalise on the growth opportunities within a large and growing home improvement market." 

Operational and strategic review

Wickes has performed strongly in the first half of 2021 supported by our digitally-led, service-enabled proposition. Two thirds of our sales were driven from digital channels in the first half of 2021, whilst retention and growth of our digital shopper base was strong having grown substantially in 2020, influenced by the pandemic.

Wickes continued to be recognised independently, winning DIY Retailer of the year at the DIY Week Awards 2021 and ranking as a top 10 UK retailer in the Financial Times Global Diversity Leaders 2021 reflecting employees' views on diversity and inclusion.

Market

The home improvement market continues to show good growth, underpinned by an ageing housing stock, property transactions and consumer confidence, driving customers to improve and invest in their homes.

Covid restrictions have further amplified this market through changes in working habits, resulting in more time spent in the home, fuelling further desire to renovate and refurbish. We have also seen increased appetite from rental tenants to invest in their properties, interest from the millennial generation in DIY, combined with a higher level of savings which supports pent up demand. When taken together these factors continue to indicate strong growth opportunities in the home improvement market.

The appetite to invest in home improvement played out strongly in the first half of 2021 as customers sought to complete projects either through DIY, employing a local tradesman or seeking concept to completion services on projects such as a kitchen or bathroom installation. The Wickes proposition continues to have broad appeal irrespective of how a customer chooses to complete their home improvement project.

Operational progress

Wickes continued to be classed as an 'essential' retailer through Covid restrictions in the first half of the year, with stores remaining partially open until 12 April 2021 and fully open thereafter.

During this period, both our store and distribution environments handled record levels of throughput, driving strong operational leverage in challenging circumstances by continuing to develop and refine working practices whilst delivering improvement in customer satisfaction measures. Investment and innovations in this area included new in-store digital handheld terminal picking capability, 'park and collect' allowing customers to remain in their vehicles when collecting goods from store and continued investment to develop in-store fulfillment space to maximise multi channel capacity. We have also seen an increase in assisted selling as customer proximity and service has returned. Throughout the first half we continued to invest in areas such as cleaning, social distancing and marshalling, to ensure that our operational environments remained safe for colleagues and customers.

Government restrictions required our DIFM showrooms within stores, which showcase our kitchen and bathroom ranges, to remain closed from January 2021 through to 12 April 2021. DIFM activity therefore relied entirely on our newly developed virtual showroom journey which was rolled out in Q4 2020. Our virtual showroom tour saw over 1m interactions within six weeks of launch, delivering a resilient level of sales despite showroom closures through our critical winter sale period.

Despite an industry-wide shortage of installers, we have continued to offer customers the best available lead times in the market and have retained our 'distinction' level of service from the Institute of Customer Service in challenging circumstances. We continue to grow our installer network with over 350 new installation teams approved in the first half of the year, strengthening the capacity and quality of our installation capability. Additionally, we continue to progress our installer apprenticeship programme with the initial cohort completing their training in the first half of the year.

Our store network remained open throughout the first half (which compares to 2020, when our stores remained closed for a number of weeks), and as a result we have seen changes in participation through our customer fulfilment channels. Participation has strengthened in self-serve, whilst click & collect has reduced. Home delivery has maintained high levels of participation following strong growth in 2020, indicating an underlying change in customer behaviour. To support this underlying change we are building out broader partnerships with carriers to service the increase in demand whilst also giving customers the best possible experience.

Availability challenges in certain categories have been widely discussed. Whilst we are not immune to these challenges, we consider our strong supplier relationships, curated range and operational agility have served us well to continue to provide customers with the products they need through this period. This is evidenced by a consistently strong and resilient Core performance through the first half of the year, and we expect to maintain a strong focus on availability to ensure we are best placed to mitigate any impact. We will also maintain a good dialogue with customers to manage expectations where supply shortages or project delays are unavoidable.

Issues on cost price inflation being experienced across the industry have been well-flagged, particularly in key commodity driven areas such as timber. We are managing through these transitory pressures by working closely with our suppliers, adjusting prices where necessary whilst maintaining a competitive price position to provide customers with the best possible value.

Winning for Trade

We have continued to grow our TradePro membership, enrolling over 50,000 new local trade customers, bringing total membership to over 600,000. Our local trade customers indicate that they have a strong pipeline of work and this has translated into increased transactions and spend, supporting our Core performance through the first half.

We continue to evolve our digital capability during the half, with more personalisation introduced in the TradePro app together with the ability to target promotional offers and give early visibility of these offers to drive loyalty. We continue to develop our Mission Motivation Engine, with an initial focus on local trade, to help us identify which missions our customers are on - leading to more relevant personalised communication across all channels. In addition, our new digital picking capability in stores enables prioritisation of the trade customer orders to ensure we can better deliver on the need to 'save me time, save me money.'

Accelerating DIFM

We believe digital development and product innovation will drive the acceleration of growth within DIFM. As such, this remained a core area of focus and investment during the half. Throughout the period the virtual showroom journey and virtual tour functionality have enabled us to continue to engage with customers and take them through the design and sales process entirely remotely, supported by our experienced design consultants.

We have continued to invest in product innovation in line with changing customer demands and needs, including a major refresh of the kitchen range, a completely new bathroom range together with a standalone home office proposition, all of which are indicating encouraging levels of interest from customers. The home office proposition notably demonstrates our agility to respond to changing consumer behaviour and leverages our existing design and installation capability. Our kitchen and bathroom ranges are being progressively introduced into our showroom displays, and will be completed in the second half of the year. We also took our new Bathroom range above the line, launching our first ever bathroom TV ad.

We continue to see high attachment rates of tiling and flooring sales to kitchen and bathroom projects, confirming the opportunity to grow adjacent categories and increase overall project spend. Installation solutions for new categories are progressing well with pilots expected to commence later this year.

Digital development has delivered improved imaging, features and pricing illustrations for DIFM projects, together with new video content supporting flooring and tiling.

DIY Category Wins

Our highly curated range continues to work well, supporting strong levels of Core sales growth and market share improvement through the first half, with extended ranges available through our in-store online terminals (OLI) and through our website.

As part of our strategy to capture market share in underweight categories, range reviews were completed in garden maintenance, flooring, timber & sheet materials and own brand power tools, delivering strong sales growth, improved availability and stockturn with an average 20% in-store SKU range reduction supported by an extended range online. Further range reviews are planned for the second half of the year.

Store Refits/Enhanced store service model

During the first half of the year, three store refits were completed in Dundee, Ruislip and Stockport together with a refresh in Taunton and a relocation in Sunderland. The sales uplifts from these investments continue to deliver strong returns on investment and we expect to accelerate this programme of investment moving into the second half of the year.

We continue to evolve our store service model and have recently re-launched our Dunstable store following a refit, to represent the current best in class store service proposition.

Financial review

Revenue

Revenue in the first half of 2021 was £812.0m, up 32.5% on 2020 comprising Core revenue of £666.7m up 35.6% and DIFM revenue of £145.3m up 20.2%.

Core revenue performance remained strong throughout the first half with like-for-like sales growth of 36.2% (44.2% compared to H1 2019). Of this growth, c3% reflects price inflation, with commodity cost increases being passed on to consumers through price in the latter part of the first half. Growth was predominantly driven through a higher number of transactions across a broad range of categories, supported by both Local Trade and DIY. As anticipated, Core growth moderated in June on a year on year basis as we annualised the full re-opening of stores following the first lockdown in 2020, remaining strong on a two year basis.

Showrooms in all of our stores remained closed through to mid April, with customer interaction supported by our newly developed virtual showroom journey. DIFM revenue performance has been remarkably resilient with like-for-like sales growth of 20.5% (down (27.9)% compared to H1 2019). There has been notably strong performance from our Bathroom category following a full range review late last year, and installation participation continues to strengthen supporting increasing customer demand for this service.

Investor & Analyst meeting 

A webcast for investors and analysts will be available today at 9.00am (UK time), followed by a live Q & A with the Wickes management team. The webcast be accessed at: https://webcasting.brrmedia.co.uk/broadcast/612f98e812f0cb436ea68dc1

A recording of the webcast will be available on the Wickes Group plc website later today: https://wickesplc.co.uk

Source : Wickes Group PLC

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16 September 2021

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