Travis Perkins well placed to weather slowdown
17 November 2009
On Saturday I received a delivery of some items from Wickes. The delivery was prompt and all in order. The reason why I used the 193 store Wickes chain, rather than the larger Homebase or mammoth B&Q was because they were substantially better priced. The uncertain housing market has dented consumer confidence has put the squeeze on sales on all the DIY stores and at Wickes/Travis Perkins, the giant builders merchant. Fortunately they still made a £146.3 million profit to Dec 2008, and Travis Perkins trades from 611 sites, with more openings planned in the future.
Like-for-like sales at Travis Perkins which grew at 9 per cent during 2007 had slowed to 5.7 per cent growth in 2008 and is down a further 13% for the half year to 30 July 2009.
The fact that they outperformed the market and gained market share (in some cases their competitors have closed down) is a positive sign and suggests to me that they will be a survivor and beneficiary of the current downturn.
Sales of big-ticket items from Wickes showrooms, which can range from a new kitchen to bathroom have been challenging.
Travis Perkins initially expected the slowdown to come and has focused on costs, allowing retail margins to improve.
Kingfisher, owner of the B&Q chain, Homebase and Focus, the main rivals to Wickes, have all struggled with sales growth, leaving their margins at about half the size of Wickes.
Margins in both the Wickes retailing division and the merchanting division - which includes both the Travis Perkins, Keyline, City Plumbing and CCF networks - have come under pressure this year, as the group struggled in the early part of this year to pass on to consumers and builders the price inflation for goods from suppliers.
They have discounted any likelihood of his competitors, such as Wolseley, Jewson or Grafton, being able to engage in a price war, similar to that which gripped the markets in 2005 as rivals fought for a dwindling market.
He said: “Others’ margins are low and do not seem to have recovered from 2005, so their appetite for a price war would be pretty low. Competitors’ margins in retail are down to around 3 per cent. We have double the operating margin. We do not see a price war as likely. They will want to build them [margins] back.”
Travis Perkins total branch network to 1,223 outlets and has adapted it's trading tactics to maximise cash and profits.
Remember as 2008 has shown, shares and other financial assets can go up and down at frightening speed. Don't buy any, unless you know what you are doing and can afford to lose the money.
Marabese