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Record revenues at Topps Tiles despite Coronavirus

2021 was a record-breaking year for the Topps Tiles Group, with a revenue record of £228 million, and 19.6% like-for-like retail sales growth.  TSJ analyses a very strong set of figures.

In the year ending 2nd October 2021, Topps Tiles Group saw sales grow 18.3% to reach £228.0 million; a record for the Group.  Gross margin was 57.3%, resulting in a profit, before tax, of £14.3 million.

Like-for-like retail sales were up 19.6% despite Coronavirus-induced trade restrictions throughout Q2; while the slight fall in gross margin reflected increased investment into value, and higher shipping costs.

The business ended the year well capitalised with a strong balance sheet: showing £27.8 million net cash at year end.  Returns on invested capital has increased from 13.1% in FY19 to 17.5% in FY21.

Trading remains robust with two-year like-for-like retail sales growth of 18.4% in first eight weeks of the current financial year despite continued trading headwinds from reduced consumer confidence, global supply chain challenges, and cost inflation.

Overall the group believes that its growth strategy, flexible supply chain, and balance sheet strength provide confidence and a stable platform for growth.

“Our full year results demonstrate the strength of our position as the UK’s leading tile specialist, and the potential of the business when it has been able to trade without restriction,” observed Chief Executive, Rob Parker.  “Despite significant disruption for a three month period, during which our stores were unable to welcome homeowners, we delivered record revenues for the year and made good progress towards our ‘1 in 5 by 2025’ market share goal.”

“We believe this performance underlines the strength of our strategy, and the success of new initiatives including the expansion of our value ranges and the introduction of innovative new products,” continued Parker.  “The successful development of our digital offer during the year has been particularly pleasing and we have plans in place to expand this further in 2022.”

“Trading in the initial weeks of the new financial year has been robust with two-year retail like-for-like sales growth of 18.4%.  While trading headwinds are likely to continue over the short term, we are confident in our strategy, and our ability to deliver sustainable long term growth.”

Impact of pandemic
The period of trading disruption caused by the UK’s first Coronavirus lockdown had a substantial impact on Topps Tiles’ sales, which were more than £20 million lower in Q2 than Q1.

Retail like-for-like sales were down 17.3% in the second quarter, and commercial projects once again slowed, particularly in the hospitality and leisure sectors.  Adjusted profit before tax in the first half was £5.1 million (2020: £1.2 million ; 2019: £7.0 million) including around £4.4 million of business rates relief.

Operationally, the business responded with great flexibility to the trading restrictions.  Online sales were up 135% in the second quarter compared to last year, and the retail website delivered record weekly performances for revenue, orders, website traffic, and conversion.

The commercial business shifted its focus into sectors that were less impacted by the lockdown, which offset the majority of the decline in hospitality and leisure.
The trading period since re-opening on 12th April 2021 was extremely strong.  In Q3, retail like-for-like retail sales on a two-year basis were up 18.5% in the 11 weeks after re-opening, and that strengthened to 21.7% growth in the final quarter.  

Commercial sales in the second half were up 55% year-on-year, and forward indicators are also encouraging.

Profitability rebounded strongly in the second half.  Adjusted profit before tax was £10.2 million (2020: £2.4 million), driven by the strong sales performance, with lower gross margins (2021: 57.1%) due to higher shipping costs, investment into value, and product mix changes; and well controlled operating costs.

Core strategy
In 2019, Topps Tiles estimates that the value of the UK market for tiles, adhesives and grouts was around £950 million.

Last year, the Group announced a new goal to account for £1 in every £5 spent on tiles and associated products in the UK by 2025: ‘1 in 5 by 2025’.  A 20% market share would represent a significant increase from the Group’s estimated 2019 market share of 17%.

In 2021, Topps Tiles recognises that some competitors who did not face physical restrictions on trading are likely to have gained some share over the lockdown period, particularly generalist DIY stores and pure play online operators.  The Group estimates that its market share in 2021 – in periods of unrestricted trading – was around 17.6%, providing confidence in the longer-term ambition of achieving the 20% goal.

Despite the challenge of Brexit and Covid-19, Topps Tiles has been able to maintain continuity of supply.  The Group took the decision to maintain a higher level of inventory than its historical average, ending the year with £32.8 million of inventory across the stores and central warehouse: £3.4 million more than the previous year.

The Group also decided early in the year not to slow down the flow of new product into the retail business, and delivered 52 new product introductions in the year.  Of these new products, more than one third (38%) were design-led by Topps Tiles in collaboration with key supply partners.  Today 74% of Topps Tiles’ retail ranges are either own brand or exclusives, and this remains key to the Group’s product differential.

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