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Homebase returns to profit following multichannel investment; Topps Tiles warns on profits as environment remains challenging

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Homebase says its customers have responded well to investment in its stores and online, as it announced it was back in profit earlier than expected.

The retailer, ranked Top150 in RXUK Top500 research, was bought by its management and retail turnaround specialist Hilco from previous owners Wesfarmers for a reported £1 in 2018. Today it reported a £3.2m EBITDA (earnings before tax, interest and one-off costs) for the year to December 29 2019, against a loss of £114.5m in 2018. It said that like-for-like sales grew by 2.6% while gross margins were 2.8% ahead in the year as customers responded to new ranges and in-store and online improvements.

Homebase chief executive Damian McGloughlin, who led that buyout, said: “Eighteen months into our turnaround, we’re extremely proud of what our team has achieved, working hard with our partners to return to profit and lay solid foundations for growth. 

“We have a very clear vision for Homebase, and we’re excited about the plans we have for the future. We will continue to invest in our ranges, services, and team members as we make Homebase the go to place for the inspiration, expertise and products customers need to take their ideas and create homes they love.”

The retailer now has 164 stores that it says are nearly all profitable as it approaches the end of its CVA (company voluntary agreement) plan that envisaged closing 42 shops, 18 months ahead of plan. That  It has 23 standalone Bathstore shops as well as 49 concessions in Homebase branches. Homebase says it has reduced its costs by more than £180m over the year, and secured a lending facility for up to £95m from Wells Fargo Capital Finance. 

Chief financial officer Andy Coleman said: “In the last 12 months we’ve removed more than £180m of cost from Homebase as well as investing to create the right foundation for growth. Having returned to profit ahead of plan, we are very well set to undertake further investment in our stores, ranges, the online business and our teams. 

“Customer response to the changes we’re making is extremely encouraging, and 2020 will be a very exciting year for our team and customers.”

In-store strategy

Homebase says it has invested £10m in its UK and Ireland stores, including the refurbishment of  51 shops to create kitchen showrooms, home furnishing departments and 49 Bathstore concessions. The retailer bought Bathstore out of administration in 2019. 

The retailer is also trialling new store formats. Two stores, trading as Decorate by Homebase, will open in Cheadle and Sutton stocking everything that shoppers need for decorating projects, from paint and brushes to flooring and tiling. The retailer says it will also expand ranges to include everything that shoppers need for smaller and larger home and garden projects, such as new kitchens and bathrooms. 

All of Homebase’s 6,600 staff will be trained in its customer service programme in the first quarter of 2020 so that staff are better able to advise customers. 

Online investment

Online sales grew by more than 50% over the year after the company upgraded the website. Now, it says, more than half of its customers start their shopping journeys online. Over the last year, online sales have been boosted by popular products including the £60 occasional chair (pictured) which sold out online in three weeks, netting more than £1.6m. 

Looking ahead, the retailer plans to launch a marketplace where shoppers can choose from a further 18,000 products. It will launch next day and named day delivery from March. 

Topps Tiles warns on full-year profits

Topps Tiles, also ranked Top150 in RXUK Top500 research, said that trading in its second quarter had not improved on the first, with like-for-like retail sales down by 5.5% in the eight weeks to February 22. It warned that pre-tax profits would be “materially” below current expectations of between £13.5m and £14.5m. 

The warning follows a first quarter in which like-for-like retail sales fell by a similar proportion, at 5.4%. Then the retailer said it thought political and economic uncertainty in the run up to the UK general election had caused the decline. It has yet to benefit from the conclusive result of the election, and Topps Tiles is now focusing on managing its costs and conserving cash. But it seems encouraging signs ahead. 

Chief executive Rob Parker said: “Trading conditions in our second quarter have remained challenging, reflecting continued weakness in home improvement spending. Against this backdrop we are taking appropriate action to ensure we remain competitive, to reduce costs and to strengthen cash flows. 

“While UK housing market indicators have shown an encouraging improvement in the period since the General Election, these traditionally have a lagged impact on our trading and we would not expect to see any benefit from these until later into the second half – our performance during this period will be key to the outcome for the year as a whole. 

“We remain confident that our market-leading retail offer and recently established commercial operations give us a strong platform from which to deliver sustainable growth over the medium and long term. 

Topps Tiles, founded in 1963, sells from 361 retail stores in the UK and from four commercial showrooms.

Images: SWNS/courtesy of Homebase

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