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I have no issue with organic growth in complementary segments.
I do however think this is left wide open for them to buy another bonus by buying other businesses.
People can't have it both ways. One minute they are complaining about a fall in tile sales (in a very tough retail market) and the next they are complaining about the company setting itself new sales targets in complementary market segments. No pleasing some people.
Pro Tiler is looking like a very successful acquisition (they've already doubled sales in two years) and plan to double sales again. To have built a Pro Tiler-like business from scratch, assuming they had the necessary skillset, could easily have cost £10m+ and taken 4-5 years+. You have to build the website, market it and then steadily build sales until it breaks even. Pro Tiler was incorporated in 2010 and only managed c£8m of sales by 2021. Sometimes taking a short cut makes sense. The acquisition of Pro Tiler doesn't look so great at the moment because of the accounting treament they've had to adopt for the acquistion of the remaining 40%. TPT has had to absorb c£8m of acquisition costs being charged to the P&L over the last two years which has impacted both EPS and dividend cover but EPS and dividend cover should start to look a lot better by the end of this financial year (subject to current trading). You might ask why they didn't set their sights on a larger online tile retailer but that would be to ignore competition issues; so TPT has to buy ancilliary businesses and grow its own online presence orignanically and I've no doubt that the the online expertise within Pro Tiler will help their other online offerings too (with patience).
TPT was in dire straits back in 2008 having taken on c£80m of debt at the wrong time to purchase its own shares and that impacted the business without a doubt for over 10 years but the business is on a much sounder financial footing now than it has been for over 15 years. Also, they're not planning to be gung-ho about their new initiatives. They plan to roll out the new products in a limited number of stores to test the waters first (as they have already been doing with outdoor tiles).
A plan is better than no plan at all.
Agreed,
The management has certainly become weaker over time with regards to experience on the tile market.
Robert Parker was clearly a fine CFO, but does that always translate to a CEO position.
Stephen Hopson is another money man with no experience of the industry.
The latest HR director lasted a matter of weeks, and I believe they are looking for a replacement Regional Durector of Sales.
It would appear all is not so rosy.
Mission 365 requires a huge leap in sales.
Can't see how they will make that organically. Looks like another LTIP where they will need to buy up other businesses to get their bonus.
Good presentation this morning. Interesting to note that since acquiring 60% of ProTiler in March 2022 for £5.3m a further £8.7m has been expensed through the P&L (of which £3.1m has been expensed in 24H1) with regard to the acquisition of the remaining 40% which is expected to be completed in 24H2.
So, although that the acquisition cost of ProTiler for tax purposes will be £14m, only £5.3m of the acquisition cost will be recognised in fixed assets. In effect, under the current accounting rules, £8.7m of the acquistion cost has been written off despite ProTiler having doubled sales since the initial acquistion and arguably now being worth more than the £14m being paid. Under previous accounting rules all of the costs would have been capitalised in fixed assets and only ever written off to the extent that the value of the business was deemed to have fallen below the amount paid.
So, the acquistion has not only reduced profits by £8.7m over the last 24 months but, to "add insult to injury", only 60% of ProTiler's profits have been attributed to TPT's shareholders to date despite its sales and operating profits being reported gross (the adjustment is made "below the line"). So, completion of the remaining ProTiler acquisition, should immediately enhance profits in 24H2 (at least partially, in not fully, offsetting the impact of the current top line sales decline), in addition to the normal seasonal cost addjustments (heat and light, and holiday pay) and earnings per share should also be enhanced too (all other factors being equal). On the flipside, of course, TPT now has to pay out a further £8.7m in cash (I don't believe that there is any provision for the earn out to be paid in shares).
I'm not trying to "paint lipstick on the pig" or gloss over the impact of falling sales, just merely pointing out that the ProTiler acquisition has been articificially depressing the profits of TPT for the last 24 months. Not only that, no tax relief is obtained for the acquisition costs being expensed.
Alfista, We'll have to compare notes in 12-18 months time. The economy has been in the tank for the last 12 months and Topps Tiles has a mature store portfolio (so can't offset falling LfL sales with new store openings sales). These figures were already pencilled in. Where we go from here depends on how quickly the economy starts to recover. Whilst money remains tight people will continue to put off big ticket spending and the construction industry will remain subdued. Now is not the time for Topp Tiles to be trying to boost its top line by discounting. H2 is always better than H1 cost-wise and EPS may still surprise once the acquisition of ProTiler has been completed. You think bricks and mortar is dead; I disagree (and so does Amazon). ProTiler continues to perform well, in part, because its not so reliant on big ticket spending; it's more reliant on small ticket spending (repairs rather than wholesale replacement).
Dessertstar, Unlike B&Q, TPT does not sell potted plants & grow bags! TPT is far more reliant on big ticket spending than B&Q; small ticket spending always tends to be less affected in recessions as people opt to repair rather than replace and extend the life of what they've already got. So, unless B&Q gives a breakdown of its tile business, a direct comparison is like comparing chalk and cheese.
As regards, having sold laminate in the past and subsequently exiting the market, I would suggest that the environment has changed (some of its previous bricks and mortar competitors have gone under) and it may prove easier to grab some of that bricks and mortar market this time round. One would also hope that they've learnt from their past mistakes. Whether or not you like their current tile range, over 60% of their tile range is unique to Topps; so, if people do like their tiles, they have no option but to buy from Topps. It remains to be seen whether they can do something similar with laminates. I'm somewhat doubtful, uniqueness wise, but if selling laminate doesn't increase their fixed running costs, making greater utilisation of existing store space is never a bad thing if that space cannot be put to more profitable use.
Finally, as regards Parkside, it has always struck me as being a rather niche business and I'm not sure what its addressable market size is. It is therefore either a question of the addressable market not being that big to start with or failing to make the break through (yet). If the latter, they've recently restructured the Parkside business and it needs to be given time to see if the changes start to bear fruit. If the former, you have to consider whether there's any potential cross-selling benefit to the wider business (at the end of the day, a sale is a sale, whether it's made directly by Parkside or indirectly by Topps Tiles as a result of buisness relationships fostered by Parkside). Regardless, at the moment I don't see a reason for TPT to jetison profitable sales.
Well Trotters. I don't know if your position as company spokesperson and chief propagandist is self appointed, or if you are actually connected with the business, but you are busting a gut to support.
Rising costs, falling revenues. Never a good recipe is it.
Trotsky , I simply am pointing out that we get the same old repeated message from Management and personally I no longer have any confidence In then
You mention the new 365 , I will do some research but some of those categories Topps used to sell and exited like laminate flooring. I point again to parkside and what waste of management time it has been.
This company needs fresh leadership in my opinion.
B&Q figures yesterday were not showing a -10% LFL .
Dessertstar, Have you looked at the economy lately? The top line isn't the be all and end all. TPT has managed to improve its gross margins in H1 and preserve cash (that's no mean feat). I'm sure that TPT and other tile retailers could grab higher sales if they were willing to discount but any increase in sales would likely be insufficient to offet the falls in gross margins and operating profits. Going "large" in a recession (technical or not) is usually a one-way ticket to insolvency.
Some feel good factor may at last be returning to the economy (early shoots perhaps) but that probably only extends as far as a few more latte in the local coffee shop or a meal out at the moment. We need to see interest/mortgage rates starting to fall before people will start to think the worst is over and start considering spending again. People have been trading up to 35 year mortgages just to keep their mortgage costs in check; hardly a good indicator that they'd be willing to add another £5-£10k to their mortgage loan to undertake some DIY!
Alfista, There's no surprise here. Given the current economic backdrop a fall in sales at Topps Tiles was fully expected (and had already been pre-warned in previous trading updates). The share price is still trading within the same range it has been for the last 3 months, albeit a bit to the lower side of the range today. The "proof of the pudding" will be whether or not that decline in sales can be recovered as when the economy starts to pick up and/or Mission 365 kicks in. I think TPT will recover from here whereas you think this is the start of the end; only time will tell but I think it's far too early to be claiming victory (one swallow does not make a summer).
My gut instinct at the moment is that when money is tight and mortgage costs are still rising people will continue to defer big ticket spending (new kitchens, bathrooms and flooring generally can all wait) and I doubt that any large tile retailers, whether bricks and mortar or online, will be increasing sales and/or profits in this economic environment.
Disappointing numbers particular getting nowhere with parkside and the core Topps stores are down 10% ..
some upside on the online business but won't be long before someone copies pro tiler and will be interesting to see if the founders actually stay now the earnout opportunity has gone ...
Can't say you weren't warned can you.
Well I know that the "high enders" still exist in my neck of the woods and I certainly dont't live in "... an area with higher than average property values and with affluent residents ...", quite the reverse.
The real world has moved on since the start of the new millennium. Those high enders used to exist before the web stole their shirts. They closed up, the distributors who supplied them have also gone. Please don't get abusive about what I know, you'd be really surprised. If you think that shoppers go to TPT stores to find cheaper alternatives to some elite store, you are very much mistaken.
I'd beg to differ. I know of several niche, local retailers in my area alone who cater to the higher end of the market (and if they exist in my area of the world I assure you that they will definitely exist in yours too). They are there if you just care to bother to go to look (but it does mean that you'll have to get up from your computer and go out into the real world).
Who are these mythical high end retailers?
In the majority of town and cities, they simply don't exist. TPT are in direct competition with the DIY majors, in general they are cheaper, online cheaper still, independent tile specialists, competitive because they source direct from factories and move the stock less than TPT. In addition to the major online folks you listed, there are numerous others, it's so cheap to have an online presence. One of them offers direct from the factory pricing, bordering illegality but who polices the online space? No, I'm not naive in any way, the industry is harsh and demanding, as are the customers. It's widely recognised that UK isn't as prosperous as it was, so I believe more changes will follow
Relative to the price of tiles in speciality, high end, tile stores they are cheap. It's all relative.
You really do need to expand your narrow mindedness. When I said "pile 'em high, sell them cheap" you clearly didn't follow my drift. "Pile 'em high" = large volumes plus supplier volume discounts. "Sell 'em cheap" = relative to up-market, local, niche, low volume retailers.
Unlike you (obviously) a lot people are quite finicky about the tiles they buy. It's often a large outlay, so they like to touch them, feel them, compare patterns, matxh them with other fittings, compare them in different light etc. etc. That's hard to do online. This is exactly the same problem Amazon encountered and why they were forced to open bricks and mortar shops in the US after they'd driven all of the natural bricks and mortar competition to the wall. We all have different views on online vs bricks and mortar but one shouldn't just simply ignore the actions of one of the largest online retailers on the planet and simply persevere with the unproven view that bricks and mortar are dead. Don't be so naive.
You're displaying a bit of naivety, I wonder if you've actually been in their stores. No piling high, and most certainly no selling cheap. Their prices are higher than a giraffe's tush.
Slick presentation and ultra pushy sales staff is their style, but competitive they aint.
Alfista, As I said in a previous post, TPT regularly reviews its store network and closes/downsizes where appropriate.
Have you also considered whether TPT's offering is something that might actually appeal in an area with "with higher than average property values and with affluent residents". TPT has always tended to offer a standardised line of products across all of its stores (it doesn't tend to change its product offering to meet specific local market demand) which means it has to carry fewer product lines and can maximise both volumes and supplier volume-based discounts.
I wouldn't be at all surpised to find more local, niche, up-market tile retailers trading in more affluent areas rather than "pile 'em high, sell them cheap retailers" if you follow my drift. I'm not disparaging TPT's products but its sales model has always been based on selling high volume, low/average value tiles rather than low volume, high value tiles.
I suggest that you have a wander around said Midlands town and tell me if I'm wrong.
You do try ever so hard don't you.
Take their branch in a well to do midlands town as an example. Downsized twice, then closed. In an area with higher than average property values and with affluent residents.
Doesn't quite chime with your rosy outlook does it ?
Maybe classic shops will win the battle for shoppers. If so, happy days. Can't see it myself though.
Alfista, What do you want? If you want to sell tiles then you are going to incur cost of sales and, the more tiles you sell, the higher your cost of sales will be (you can't sell and incur zero costs)! TPT may have the highest cost of sales (£s) but it also has the highest sales (£s) and gross margin (%), so go figure!
Rent, rates, heat and light are not just the blight of bricks and mortar retailers (online retailers do incur some of these costs too, either directly or indirectly) and you don't just throw out the baby with the bathwater (sell your stores) because there's been a general economic downturn. TPT's current trading issues aren't simply down to increased online competition; all tile retailers are suffering. Badly run businesses, like Tile Giant, will always go to the wall eventually, regardless of whether or not they are trading through bricks and mortar or online. I wouldn't be at all surprised to see both online and bricks and mortar retailers going to the wall in the coming year but TPT is one of the strongest tile retailers in the market and there's no current reason to think that it will be amongst those failing businesses.
As Amazon has clearly proven, online cannot prosper without bricks and mortar (Amazon drove bricks and mortar retailers to the wall in the US but then had to open its own bricks and mortar outlets because customers still wanted to touch, view and compare before they bought big ticket items) Some bricks and mortar retailers will flounder but some will survive and I expect TPT not only to survive but prosper (I wouldn't be too surprised to see TPT expanding its own, existing online retail offering through ProTiler is due course).
Dessertstar, When was the last time TPT made £40m+ profits? Not in the last 15+ years! In part it's poor profits performance since 2008 is due to the c£100m debt it took on to purchase its own shares in c2006; that additional financing cost weighed down the profits performance for over a decade (which explained the poor share performance and the collapse in the share price) but that debt has now been repaid. Margins are lower than they have been historically due to the impact of Covid and input price inflation (these factors have affected all tile retailers not just TPT) but TPT is now in the process of rebuilding its margins, as outlined in its FY23 results and the recent H1 trading update. Whether gross margins can be increased back to 60%+ remains to be seen. There's no doubt that increased online competition will continue to apply pressure to TPT's gross margins (there's only so far that volume discounts from suppliers can take you) and I think that mid to high 50s, rather than low 50s, is a more realistic expectation. Online competitors will want to take market share from TPT but they won't want to drive it out of business because they are able to piggy back their own sales off its bricks and mortar outlets (think Amazon).
TheTrotsky,
I'm not sure that assumption is correct as Topps also sell adhesives and ancillary products. As far as I know it was just 1 in 5 of the tile market including adhesives etc.
Whatisgoingon, I accept that management bonus schemes should always be kept under review but the 1:5 target is, I believe, soley in reference to tiles and ProTiler doesn't sell tiles (it sells ancillary products). Most, if not all, of the growth in tile sales have been through organic growth.
As far as the consumer was aware, TG didn't collapse, but they are indicative of the difficulty bricks and mortar retail faces. .
Costs aren' decreasing, only one way they'll go. Online sets the price expectation, and is hard to counter IMHO
I hope the positive people ok here are proven right and the second half of this year does not get worse for toppstiles , I stand by my comment that they need some fresh changes at management level even if it’s additions … This company in its best years was making 40m plus profits per year and last 10 years it’s not moved and my concern is the share price for the last 2 years has not been great.
I also expected Topps to take market share from Tile Giant after its collapse but I guess their former CEO who now owns Tile Giant is doing a better Job and growing sales there ….