Wickes Group plc (WIX) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us today for what is our first full-year results presentation as an independent company since emerging from Travis Perkins last April. I'm here with our CFO, Julie Wirth, and together, we would like to take you through the performance of our business for the year ending the 1st of January 2022, as well as highlighting how we intend to maximize our growth levers to take full advantage of the opportunities in the U.K.'s large and growing home improvement market. Julie will also share our outlook for the year ahead and give an update on our capital allocation priorities. 2021 was a milestone year for Wickes, as we embarked on our journey as a stand-alone business and delivered record financial results. Our strong performance was underpinned by our uniquely balanced business model across the 3 distinct customer propositions of Local Trade, Do It For Me and DIY. This model enabled us to successfully navigate the pandemic, respond to fast-changing consumer trends and fulfill growing customer demand, leading us to outperform the U.K. home improvement market by twofold. While the market grew by around 6% to GBP 26.5 billion, our sales grew at around 14%. We have continued to grow our customer base and critically retain those customers who are already shopping with us. Customer satisfaction is up, and we have gained further market share, all while delivering excellent value and availability, despite challenging external factors. We are making considerable progress across each of our strategic leaders. And as such, we are accelerating investments into a number of these to take full advantage of the market potential and importantly to deliver innovative new products, services and stores to our customers. We now have a capital structure that facilitates our ability to grow the business and deliver superior returns. I'd now like to hand over to Julie to take you through the numbers.

Thank you, David. Good morning, everyone. I would like to echo how delighted we are to be delivering our first set of annual results as a listed business. Wickes financial performance in 2021 reflects a strong, balanced and resilient business model where despite ongoing COVID disruption, revenue grew on a like-for-like basis by 13% to GBP 1.5 billion. Our strong revenue growth, together with operational cost leverage, delivered adjusted profit before tax of GBP 85 million, representing growth of over 70% year-on-year. Our net debt position has improved significantly to GBP 690 million. This reflects our lease renewal profile and unusually for our business, working capital outflow for 2021 as we recovered and strengthened our stock position year-on-year. We have declared a final dividend of 8.8p, taking the total for the year to 10.9p, and this represents 40% of adjusted post-tax profit for 2021. This is ahead of the 30% indicated at the time of demerger and reflective of our updated capital allocation framework, which I'll come back to later. It also reaffirms our strong 2021 performance and overall confidence in our business model. Overall, an excellent set of results for the year. So let's look at those results in a little more detail. Within our total sales growth of 14%, inflation accounts for around 7% of that growth with rates accelerating into the second half of the year from 3% in the first half. As anticipated, our gross profit margin declined by 80 basis points. This was partly impacted by mix with local trade, bathroom and installation participation increasing, but most notably, this reflected the recovery of inflation on a cash margin basis, which negatively impacted the margin rate. This approach has enabled us to continue to offer customers the best possible value and drive revenue growth ahead of the market. Our cost efficiency has improved by 230 basis points, reflecting the strength of operational leverage, partially offset by incremental PLC costs as previously guided. There was a return to more normalized levels of marketing activity and the payment of bonus reward across the business, recognizing the strong overall performance for the year. Overall, we have delivered operating profit of GBP 116.3 million or 7.6% of sales, which compares strongly with both the prior year at 6.1% and perhaps more notably 2019 at 7.4%. It has though been an unusual journey from an audit sales perspective through 2021. This slide, which shows weekly ordered like-for-like sales performance is purely a reminder of the unusual trading conditions through the year, where our Do It For Me showrooms were entirely closed through to mid-April. We also annualized periods of lockdown in 2020 and saw further disruption through periods of self-isolation across 2021. Our delivered sales performance; however, continued to be strong and resilient in the face of this disruption. This slide shows the 2-year delivered like-for-like revenue performance through the lens of first half, second half and the split between core and Do It For Me revenue growth. As a reminder, delivered rather than ordered revenue represents what we recognize in the accounts. Core revenue performance was extremely strong in the first half of the year, with 2-year like-for-like revenue growth of over 44%. This was achieved across a broad range of categories and supported by both DIY and local trade customers and underpinned by our digital and fulfillment capability. In the second half year, core revenue remains strong, albeit moderating to 26.7% as the tailwinds from DIY customers in lockdown reduced. Local trade customers drove this strong performance with their pipeline of work remaining very buoyant, and this trend has continued into the current year. Do It For Me revenue was impacted in the first half as our Do It For Me showrooms were closed through to the middle of April, affecting one of our key trading periods or DIFM, our winter sale. Despite these closures, a significant proportion of sales are maintained, supported by our virtual customer journey, which was developed at the tail end of 2020. In the second half, Do It For Me delivered revenue improved relative to the first half, but continued to be impacted by ongoing COVID disruption. And notably self-isolation for both our customers and installers, the pandemic as it was affectionately known. Customers continue to place orders with us second half of the year as our proposition and lead times remained compelling and competitive in the market. This resulted in a very strong order book position at the year-end, which was more than double that seen at the end of 2019 at over GBP 100 million. We would expect this to at least partially unwind in the current year benefiting 2022 revenue performance. Now turning to the drivers of profit year-on-year. This waterfall chart clearly shows the key drivers of profit movement in the year, with very strong core sales and Do It For Me starting to recover. As I flagged at the interim stage, COVID costs largely fell away, marketing investment returned to more normalized levels. And it's worth noting here that our marketing spend remains less than 2.5% of sales with increasing focus on digital marketing. The strong profit performance has triggered bonus payments across the business. This compares with 2020 with minimal payout and PLC costs stepped up in this our first year following the demerger. Ultimately, this is a very strong financial performance, driven by trading and operational excellence, delivering a record level of PBT at GBP 85 million. Moving on to cash. Our year-end cash was GBP 123 million, a reduction from half year at GBP 204 million and in line with guidance. It is important to note that our normalized profile for cash will generally show a higher position at half year than full year, impacted by our trading and working capital cycle. This year, we have some unusual factors that have resulted in a more marked reduction in cash in the second half of the year. The first is a significant strengthening of our stock position year-on-year, where we have recovered stock levels following COVID disruption and have also built additional forward cover to assure availability. These are one-off impacts, not expected to recur moving forward. In addition, inflation is also impacting the value of stockholding. Despite these factors, our stock turn remains very strong at 5.1x, reflecting our curated range and operational agility. Calendar change this year to reflect a week 53 cutoff. And whilst this has minimal impact on profit, the impact on cash was around GBP 10 million, which is not expected to reverse until 2023. Capital investment was GBP 26.5 million for the year and second half weighted. Similarly, separation costs accelerated as the year progressed. Taken together with our first dividend payment in the second half, the year-end cash position was GBP 123 million, broadly in line with our pro forma position at the merger. It is worth noting that for 2022, we will, of course, have a final dividend payment in the first half of the year declared today. Moving on now to our all-important capital structure. As we think about capital structure and capital allocation priorities, I thought it would be useful to have a quick reminder on the structure of our balance sheet. We carry significant lease debt from the leasehold store portfolio of GBP 742 million as at the end of 2021. This will vary over time, impacted by the profile of lease renewals and new lease commitments, for example, on new stores. We expect our lease debt to reduce over the next few years, primarily influenced by a low level of lease renewals before increasing from 2026 onwards as the level of lease renewals accelerates. This is illustrated by the chart on the right, which shows the number of lease renewals by year. To give a guide, I would expect a similar reduction in lease debt in full year 2022 as seen in full in 2021. Given the low level of lease renewals in the short term, with that reduction narrowing through 2026 as lease renewals accelerate and we start to add new stores. Turning to how we think about capital allocation. We intend to maintain a strong balance sheet. We have reviewed the needs of the business and we'll target IFRS net debt-to-EBITDA leverage consistently below 2.75x, whilst maintaining cash on the balance sheet appropriate for working capital purposes. Ordinarily, our business is a cash-generative model with a neutral working capital position. As at the end of 2021, we sit just outside our leverage target at 2.8x. We will invest to drive our growth ahead of the market. This investment will be on opportunities generating high return, and we are increasing our annual capital investment to around GBP 45 million per annum to accelerate and drive growth. David will shortly take you through the key areas of focus for this accelerated investment. Alongside capital investment to drive growth, we have additional investment in the immediate term to conclude our IT separation from Travis Perkins, which is expected to be around GBP 30 million with a majority of remaining investments in 2022. Our dividend policy is confirmed at 40% of adjusted post-tax profit. This is an immediate increase from the 30% progressive policy indicated at the merger, a sign of the Board's confidence in the business going forward. Against this framework, the Board may conclude that it has surplus cash. And where this to arise, the preference would be to return this surplus to investors via share buybacks or special dividends. And finally for me, a few words on the current outlook. In total, trading in the first 11 weeks of 2022 is in line with last year. As we annualize strong 2021 comparatives, core sales are down 6.7% year-on-year and up 26.3% on a 2-year basis. We remain particularly encouraged by the pipeline of work currently enjoyed by our local trade customers who underpin the strong performance. Do It For Me has had a positive start to the year and the order pipeline has continued to build strongly through our winter sale trading period. And of course, we have the healthy backdrop of a brought forward order book of over GBP 100 million, more than double that of a year ago. This will support 2022 performance, giving us confidence that delivered Do It For Me sales will be ahead of 2019, a more typical year, which was reported at just under GBP 400 million. In summary, for 2022, we expect another year of progress, whilst, of course, being mindful of a challenging geopolitical and macroeconomic backdrop. I look forward to your questions later. In the meantime, I would like to hand back to David, who will take you through our strategic update and growth opportunities. Thank you.

Thank you, Julie. I'll now take you through why we believe Wickes is a business with exceptional potential and why we're confident in our ability to grow ahead of the market. Our proven growth levers are working well and helping us to consistently outperform. And this is leading us to step up investment where we believe we can drive further growth and strong returns. Specifically, accelerating our store investment program, growing our TradePro membership scheme, exploring new Do It For Me propositions and investing in our installer teams to convert our large order book. And last but not least, advancing our digital leadership with innovative new digital experiences for our customers. Now let me share with you the strength of the fundamentals that underpin this large market worth GBP 26.5 billion today. We are a property-owned democracy. It was 65% of the U.K.'s housing stock owner occupied. The lion share of which is well over 50 years old, generating an ongoing need for homes to be repaired, maintained and upgraded. Just as the age of this housing stock is going up, so is the value. And as you can see from this chart, we're at record levels of housing transactions. This underpins the home improvement market in 2 ways. When people move house, they tend to seek to improve and in particular invest in larger ticket projects, such as a new extension kitchen or bathroom. Additionally, people are using the increasing value of their homes to draw down equity and make improvements to their property assets. Alongside this, one of the legacies of the pandemic is that we are spending more time at home and we want our homes and gardens to better reflect the way we're living and working today. And this is encouraging people to invest in their living space. So given the significant number of housing transactions over the last couple of years, and the change in the way people are using their homes, we expect this to fuel demand for our products and services. The chart on the bottom right shows that older people spend more money on their homes and typically will use tradespeople or installation services to help them with their home improvement projects. This benefits both the local trade and Do It For Me parts of our business, where we have an older, more affluent customer profile. Looking forward, as the nation faces dramatically increasing energy bills, people will be looking for ways to reduce their costs, whether that's by fitting better insulation or investing in newer technologies, such as solar or air source heat pumps. And to that, the government's target to reach net-zero by 2050 and the fact that around 40% of the U.K.'s carbon emissions come from the residential sector, there will be an increasingly urgent need to decarbonize the U.K.'s housing stock by making our homes more energy efficient, which presents a tremendous long-term growth opportunity for us not least given our unique installation capability. Together, we believe these structural drivers point to a market which will continue to grow long term with robust demand in the near term as we are seeing strong local trade order books and our own record Do It For Me order book, which will translate into sales this year. So in summary, the cornerstones of this market remain in good health and underpin future growth. And as you can see from this chart, our expectation is this market will grow to GBP 29 billion by 2024-'25. 2021 saw a COVID-driven step-up in growth of 6%. And as already mentioned, we outperformed the market twofold with sales at [ '14 ]. We expect the market growth to moderate to more normal levels of around 2.5% to 3%. And anticipate that Do It For Me and local trade will be the engines fueling this growth as DIY starts to settle after its COVID heights. We fully expect to continue to outperform the market, thanks to our distinctive business model and proven growth levers, which we plan to accelerate with increased investment. So how do we win in this market? What's the source of our sustainable competitive advantage? The answer lies in our highly distinctive business model. We are so much more than just a DIY business. We cover all routes that customers use to get their home improvement projects done. We are there for them, whether they choose to hire local trade, do it themselves or if they want to use our Do It For Me service where our team of design consultants and installers are there to help them every step of the way, from concept to completion. At the heart of our business model is our purpose, which is to simply help the nation feel house proud. This is underpinned by our market-leading proposition based on a highly curated range, simple value proposition served from a low-cost rightsized estate and supported by our digital capability and customer service. Together, this ensures we deliver market-leading metrics in terms of price leadership, stock turn and sales per square foot. This model is highly efficient. It's hard to replicate and offers us the greatest exposure to the fastest-growing segments of the market, Do It For Me and local trade. This slide will be familiar to you. It outlines the strong portfolio of growth levers that we have to win in the market. I'm going to simply focus on those where we intend to step up investments and accelerate our growth plans. The first of these being store investment. Our refit program is truly transforming our store environment and enhancing the operational efficiencies of our unique 4C service model. These refits provide ease of shop showrooms that wonderfully showcase our Do It For Me products and service, increased capacity for home delivery and Click & Collect and give customers instant digital access to our fully extended range via our in-store online service. The success of this strategy is evidenced by sales growth from GBP 1.2 billion to over GBP 1.5 billion within the last 3 years. This is exclusively like-for-like sales as our overall footprint has reduced during this period. Of our 232 stores, 151 of them are now refitted in the new format, and we're very encouraged by their performance with average sales uplift of more than 25%. The average size of our stores is 28,000 square feet. And refitted stores deliver higher sales per square foot at GBP 260 compared to heritage stores of GBP 198 per square foot. Refits also consistently achieved a return on capital employed of over 25%. So given the strong and consistent performance of our refitted stores, we intend to go harder and faster with our refit program, and we are planning around 12 to 15 refits per year, up from an average of around 7 over recent years, which will mean we'll have completed the entire estate over the next 5 years. I'd now like to turn to our plans to open brand new stores. The successful performance of our model, combined with our newly independent status has afforded us the opportunity to look again at our store estate and where we should trade. Switching data from [ Kantar ] evidences that we are winning customers from all competitors, taking share and footfall. It's been several years since we've had a comprehensive new store opening program, and we're excited to announce the plans to open 20 new stores and create over 1,000 new jobs. The first of these stores will open early in 2023. White space opportunities include additional stores in large catchments where we are underrepresented, and also smaller towns not currently served by a Wickes store. We are confident that these new stores will deliver strong returns and additional scale benefits. And together with our plans to increase the number of refits per year, we expect them to support a growth trajectory that is ahead of the market. The second growth lever we plan to accelerate is our TradePro scheme. It focuses on saving our trade customers both time and money. We make it easy and convenient to shop through the TradePro app, and our store teams pick, pack and dispatch straight into their vans, all at a 10% discount. TradePro customers are our most strategically valuable customers. They spend 10x the amount of an average DIY customer. And as you can see from these charts, we are successfully growing our TradePro membership. In 2021, we welcomed a record 80,000 new trades people to our scheme, taking our base to just over 630,000. And in the first 10 weeks of this year, we have already added a further 26,000, so momentum is intensifying. The amount they spend is also rising. Sales are up 39% in the last year alone. And they continue to shop more often and increase their average order value. These are also extremely busy people. And our latest research found that 66% of them have worked lined up for 3 months plus and 1 in 4 traders has worked lined up for 12 months or more, which means we'll be seeing a lot more of them over the course of 2022. The simplicity and focus of this scheme makes it a real winning format, and the return on investment is highly productive, which is why we'll be increasing our investment in TradePro to secure more sign-ups. We plan to deepen and broaden our relationship with our TradePro members through offering extended services via an app and using our digital expertise and data insight to personalize their TradePro experience, rewarding them for their loyalty. Ultimately, we have an ambition to have 1 million TradePro members. Many of the enhancements we made as a result of the pandemic continue to feature in our Do It For Me proposition. While our showrooms were closed, our virtual showroom journey 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. Now our showrooms are open again, this service remains very popular with customers. Since we launched this at the end of 2020, there have been over 3.3 million customer interactions with our virtual showroom tour. Our ability to handle the whole process from concept to completion is highly valued by customers, and we are seeing high levels of demand for Wickes installers to carry out their kitchen or bathroom installation. Likewise, we're also seeing very high levels of demand for these customers to use our installation teams for the tiling and flooring element of their projects too. Our installer base is one of the great strengths of our Do It For Me proposition, and our customers greatly value the quality assurance that our Wickes installer teams guarantee. We were delighted to retain our distinctive level of service award from the Institute of Customer Service for our installation quality. Despite the national shortage of installers, we added a further 700 teams to increase our base to over 2,600. This is more than we had before the pandemic with a trajectory which will see us increase by an additional 25% in 2022. Additionally, we continue to progress our unique installer apprenticeship program to develop skills for the future in this sector. We've also grown our design consultant population by over 150 taking our design consultant base to well over 600. And record numbers of our design consultants hit the 1 million sales mark further building the strength of our order book. Our continued focus on product innovation is keeping us on trend with new products introduced during the last 18 months, accounting for over 25% of all sales. On the back of the successful launch of tiling and flooring installations, we continue to test and learn with additional installation service offers. We recently launched internal joinery and are conducting localized tests on landscaping. In addition to adjacent categories, we have identified opportunities over the medium term to deepen and broaden our proposition in the overall kitchen market. In summary, we have confident growth ambitions for our Do It For Me business as we expand our proposition across products, services and distribution to an even wider customer base. Now before I move on, I'd like to show you our new TV ad which airs for the first time this evening. So you're the first people to see it. This simply brings to life how we're helping the nation feel house proud. [Presentation]

Well, I hope you enjoyed that. Now the launch is on Gogglebox this evening. Okay. Look, we continue to cement our position as a digital-led service-enabled retailer with 2/3 of all sales emanating our digital channels and 98% of these sales touching the store. It's bricks and clicks working symbiotically to drive superior performance. We see tremendous opportunity to grow sales, customer satisfaction and market share through enhancing the customer digital experience and have a plethora of plans to do so across local trade, Do It For Me and DIY. We are increasing the appeal of the TradePro scheme by creating our loyalty proposition stronger than a simple discount scheme. There is more personalization, targeted events and additional services for our most loyal customers. In Do It For Me, we have expanded our successful virtual kitchen experience to include bathrooms. And we are leveraging virtual reality and augmented reality to improve the showroom journey online and in-store. For DIY customers in quarter 4 last year, we launched a new app and conversion rates are above expectations. We already enjoy strong conversion from our website. But if a customer comes through the app, they are twice as likely to convert to a sale. We're also reaching out to new customers and offering greater access to our range by partnering with marketplace platforms such as eBay. All our digital activity is underpinned by machine learning capability. We call it our Missions Motivation Engine. This helps us identify how we can drive better customer and commercial outcomes by engaging with customers early in their project planning process, making sure we can be their retailer of choice when it comes to their home improvement mission. One of the many great things about becoming an independent business has been that we are now able to develop our own ESG strategy. And today, I'm delighted to launch our new responsible business strategy. We've called this built to last, and it aims to support a diverse and inclusive society, an environment that is protected for the next generation and homes that are fit for a sustainable future for everyone. The strategy is embedded within the business and the government's framework provides board level oversight with a responsible business committee chaired by our Non-Executive Director, Sonita Alleyne. The strategy is built across 3 pillars of people, environment and home. If we look through the lens of these 3 pillars at last year's activities, we've achieved some great results. Let me just pick out a few that we're most proud of. We were ranked in the Financial Times Global Diversity Leaders 2022 survey as the U.K.'s #2 retailer. Creating an inclusive and diverse workplace and culture is a priority for us at Wickes. And we recently launched our new Feel at Home program, championed and led by our 6 fantastic inclusion and diversity colleague networks. On the environment, this past year, we've been working hard to understand our environmental impact and have completed our first carbon footprinting exercise for our scope 1, 2 and 3 emissions. We have started testing new low-carbon technologies for future use in our estates, including electric air source heat pumps for our stores. And we aren't only looking at ways to reduce our own environmental impact, we also want to help our customers create more sustainable homes by providing sustainable products and services that are responsibly sourced. We've hosted several customer closeness sessions to understand how we can support customers with this challenge. We will continue to review our ranges to expand our offering of responsibly sourced and energy-efficient products. You will see that across each pillar, we have set a series of goals and targets. In the environmental pillar, we intend to set science-based targets this year. I look forward to updating you on our progress as we implement our new responsible business strategy. So in summary, 2021 was a memorable and successful year for Wickes, and we have a clear strategy to drive future growth and deliver shareholder returns. Our highly distinctive business model is a source of competitive advantage, and we have exciting plans to increase investment and accelerate our proven growth levers. We are confident that the combination of these factors will ensure we continue to outperform the market. The investment in our growth levers will deliver attractive returns and generate additional cash and we have established a new capital structure framework which facilitates these plans and at the same time, allow scope for future return to shareholders. Thank you for listening. Julie and I will be very happy to answer any questions you may have.

[Operator Instructions] And we will now take your first question from David O'Brien from Goodbody.

A few, please. But firstly, if we start on core, just wondering if could you give us a sense of how the basket size has evolved into the second half and maybe into Q1 '22? And then maybe the business has undergone quite a lot of growth over the last couple of years. How does that split between trade and DIY look now? and I guess, similar to a lot of businesses in this space, we are seeing a normalization of volumes and trade patterns. Has that impacted the competitive dynamics materially in the latter part of the year and early part of 2022? And then finally, if I could, David, you spoke about installation capability when you were talking about the long-term opportunity around energy efficiency? Are you exploring the potential to maybe give a retrofitting opportunity in the market or retrofitting solution to customers, which clearly would be quite topical?

I think I got all of that -- audibility was a bit challenging there, wasn't it?

I think the third question, I...

Could you just repeat the third part of that, please, sorry? I got the core basket side -- It was the third bit, we're struggling with audibility.

Sorry, just on the last point, I guess, you spoke about your installation capability in the context of the longer-term energy efficiency trend. Are you exploring opportunities around engaging with installers on retrofitting solutions for customers longer term?

Okay. Well, let me just talk to core, and I'll probably answer that through the context of how we see our business through a multichannel lens. We are seeing the basket size evolve. Typically, the basket size for a walking customer would have been around about GBP 25, and I think that values very common across a number of retail sectors. It is in the higher GBP 20s now. As we look across to Click & Collect, that is in the lower GBP 40s now, in terms of where that basket is. And when you move out to home delivery, you're much more in this sort of like the GBP 130 and above. So we are seeing average order value increase, and we still see that profile across the multichannel business where the strategic value of that customer increases, the more different channels that they use and engage with the business. In the round, we normally describe our business as very uniquely balanced in terms of sort of like 1/3 Do It For Me, 1/3 local trade and a 1/3 DIY. I think it's fair to say at the moment in terms of that shape of that core performance, we're definitely seeing a bias towards trade at this moment in time. I mean our trade business is in really good health at the moment. As you heard, it grew 39% last year. We're seeing really strong engagement and sign-ups this year, and that rate of engagement is really stepping up. So I think within that mix, we can see DIY starting to come off its COVID heights and normalize a little bit more, but trade is the real strength in terms of the performance within that overall core business. I mean we're still encouraged by DIY because we have -- one of the legacies of DIY is a new younger audience of DIY-ers. And they still talk confidently about wanting to do more DIY in the future. But to the direct question, trade is definitely more buoyant. Installations capability, it's a super question and something that's definitely on our radar. I've always said and continue to say actually that a vision for this business is that you step over a door, we fitted onto a floor, we've fitted into a kitchen. We have out through the bifold into a garden we've landscape. So I think our ambition on our glide path over time, on overnight will still be very much that way. I think, helping customers retrofit their properties to be more energy efficient absolutely has to feature on that glide path.

We will now take our next question from Ami Galla from Citigroup. .

Just a few questions for me. The first one was really on consumer behavior on the back of the inflation that we have seen. Has there been any material shift in the buying patterns? Have you seen any element of them trading down to, say, lower price substitute? A second one around that is, can you give us some color in terms of your own label products within the sort of core segment, the percentage of own label there? And the second one I had was really on the capacity as you grow your business, in terms of warehousing capacity. Can you give us some color as to what sort of level -- what sort of headroom do you have and where the further investments are needed in that respect?

Should I like to pick up the first one in terms of the human behavior point. Certainly, so far this year, we've not seen any market change in terms of human behavior in response to perhaps inflationary pressure, et cetera. What we're confident about in terms of our business is we continue to offer a very competitive price position in the market. We continue to do that. But we've not seen any significant change in consumer buying trends at this stage. Perhaps a little early, but certainly no change to date.

And just to pick up on the label point, I mean one of the towering strengths of the Wickes business is its own label penetration. So around about 2/3 of our sales are our own brands. Historically, until any recent years, we were a 100% owned brand business. So over the last half a century, we've built all of that sort of like credibility and quality and understanding of the Wickes own brand. So in inflationary times, it does offer the broader market, a great entry level at a great that is really well trusted. I mean it's -- our traders are very happy to walk over a customer's door holding a [indiscernible]. They've grown up using it for the last half a century. So it's a very strong proposition, super value. And I think capacity in terms of distribution, we're very well placed to flex the capacity we have to suit the growing needs of the business.

We will now take our next question from Kate Calvert from Investec.

Just 3 for me. The first is on stock levels. I think I heard rightly that you said that your stock levels were back above historic levels. Did I hear correctly? And also, are there any sort of key areas where you have issues still? And where are you on lead times with supplies? Are they still very extended? My second question is on inflation and your thoughts on the inflation outlook over the next year. And my final question is on TradePro. You said you were looking to increase the appeal. Can you give a little bit more detail on some of your plans? I think you mentioned targeted events. But if you could elaborate a little further, I'd appreciate that.

Julie, you will take the first one?

I'll take stock and inflation. So in terms of stock levels, clearly, we've built stock quite considerably year-on-year. There are 3 elements to that. One is very much inflation driven. So inflation is flowing through into that stock position, as you might expect. Timber is one of the key areas for us. It's a large part of our business, which is driving that. The second is a recovery of stock levels following COVID disruption. So we ended the year in 2020 at relatively low levels of stock and we sought to recover that position as we've moved through 2021. And then the third point really is recognizing there is still a level of disruption potentially in the market. We've sought to protect our stock position by rebuilding and assuring availability in some areas. There are no particular challenges in terms of stock availability. Certainly, we've returned very much to more normalized levels of availability, and that is assured through our strong stock position, our curated range, the strong relationship we have with our suppliers very much so. And just to emphasize on stock, our stock turn, despite that build, still sits at a very strong 5.1x. So that's very strong and that has built over the last and improved over the last few years. In terms of inflation outlook, I think it's fair to say, as you know, inflation accelerated in the second half of last year, perhaps a few months back, we may have thought that was going to be transitory from where we sit today, that seems to be certainly a lot stickier and is likely to pervade over the course of 2022. So we're very watchful of inflation. We monitor that closely. And our approach in terms of feeding that through into pricing, providing we can maintain that competitive price position, very much still holds. And we're managing that through our cost base by making sure we have an absolute and continued focus on driving productivity.

Thank you, Julie. And Kate, just coming back on the TradePro question. I mean, at the moment, the TradePro is a phenomenal tool in the traders sort of like kits, they can see stock. They can order what they need. And as I said earlier, we literally pick it, pack it, put it in their van, ordered the 10% discount when they drive past. But we want to build out that sort of indispensability of the TradePro app for the TradePro customer. So one of the things we'll be putting more promotional activity through the app, more of that being very personalized to the individual because we can now see through our data and the nature of the products that matter most to people at an individual level rather than just cohorts of traders. So we will add value by providing value on the things that, that customer values most in our business. And the other thing we're planning to do is work with other partners to increase functionality into the TradePro, that might be tooled insurance, van insurance. So other extended services through partnerships to build out the TradePro proposition.

We will now take our next question from Adam Cochrane from Deutsche Bank.

A couple of questions, if I may. So firstly, on new stores, it's nice to see some growth in the store base. Can you just run through things like what's changed your mind on the fact that you can now open up new stores, what's it like in terms of availability with the rental environment that we're in, has it just become more attractive to open up new stores? And secondly, on trade, you talked about the 1 million target from the current sort of 600,000 or so. How of the sort of total trade market, what proportion is 1 million to try and put it in some context? And with trade as well as increasing the number of trade people that you are dealing with. Do you have an idea of how much of their share of wallet you are getting and how much more you could access from your existing customers? And then the final question on -- thanks for the detail on the market side and where it's heading towards over the next few years. Can you just give us a bit on how you see Wickes' performance against that sort of market growth towards GBP 30 billion? What proportion of that Wickes might realistically be able to address?

Super. Thank you, Adam. Let me have -- I'll try to take most of those actually and then you can add as we go. Look, it's a great question on new stores. I mean our approach on property and it does remain so by the way, has always been about quality over quantity in the first instance. And new stores did feature in our thinking, but just not at the scale that we're thinking about now. And why? One, we are an independent business. So we've got much better line of sight, the cash that we can invest specifically behind what we think are very positive growth levers. Two, we have now really demonstrated to ourselves the consistent outperformance that this uniquely balanced model brings to the marketplace. It's a very digital business. It's very service-enabled business. And I think it's fair to say, Adam, that we may have been a little bit defensive in recent years. But now what we see, given how we're attracting customers from all of our competitors. I think we can be a little bolder in terms of where we actually start to lay down our footprint. So that probably -- that's really what gets us to the sort of like these 20 new stores sort of things, so taking our store network probably closer to around about sort of like 245, 250 over time. Yes, the trade target. So we're targeting GBP 1 million and how does that fit into the trade universe. It's a great question. What I will struggle to answer because you get varying levels of data as to how many sort of registered traders, they really are in the marketplace. But normally, you hear numbers around the GBP 2 million to GBP 2.5 million mark in terms of the number of traders. So we will be going for sort of like 50% plus penetration of that sector, which, by the way, I do not think is unreasonable in terms of our opportunity to achieve. And share of wallet is similar. I mean we can see the average spend that a trader delivers with us. We recognize that traders do shop around. That's definitely a habit of a trader. And I'm sure you've heard that before, back from the market. What we believe in our proposition now is that it's much more sticky and through our ability to personalize that we can start to attract more of that wallet. So our ambition is that we do drive loyalty and build out a much bigger loyalty platform with those trade customers. Market size, I guess, if I look forward over probably a 4- or 5-year horizon, as we showed in the chart, the season market getting close to sort of like GBP 29 billion, maybe GBP 30 billion. For our business, the market grows 2% to 3%. We continue to outperform that market growth by around the sort of the 1.5% to 3% mark. Would see us as a GBP 2 billion business over that time horizon. Beyond that, I can see this as a GBP 2.5 billion business. I'm talking longer term. If I think through what is our 4C model, our 4C service model, an average store in which at the moment probably delivers around GBP 7 million. My ambition is that an average store over time, long term, gets closer to GBP 10 million. And the way that we think about that, when we think through our 4C service model is we have self-serve. We have to Do-it-for-me in the showroom business. We have home fulfillment, and then we have our online in-store assisted selling business. As we think about it as 4, 3, 2, 1, GBP 4 million through self-serve, GBP 3 million through showroom, GBP 2 million through home delivery and Click & Collect and GBP 1 million through digitally enabled online in-store sales. So that's how we think about the shape of our service proposition, hitting an average of GBP 10 million in the long term, but you could see this business if you had 250 stores achieving that on average, would be GBP 2.5 billion. But in the 4- to 5-year horizon, I think GBP 2 billion for this business within that market would be a good assessment.

We will now take our next question from Tony Shiret from Panmure Gordon.

Congratulations on the numbers. Three questions, please. Just a simple one to start with. I just wondered what the -- what you regard the drive time for trade person to your Wickes stores on an average? Second question, I wonder if you give some insight into the capital cost of refit and the capital cost of a new store in your plans? And lastly on the IT separation, I just wondered what's been done and what still to be done? And whether over the course of what's been done so far, you've learned stuff that you see change your plan [indiscernible]?

Seems, we have a feedback there. Yes. I'll take drive time, and that's a great question. It's not something that we analyze. But I think we could draw a conclusion that the most traders will want to be reasonably close to the location of the place that they're working. Obviously, the great thing about our business is because it is fully integrated and fully multichannel try to consider a home in London and you might be driving to [indiscernible] to do some work, but he can sit at home in London, order everything out [indiscernible] the store. And as it drives pass through that destination, as I say, we will pick it, pack it and get it into his van. But I don't have the exact detail in terms of what the drive time is. But in terms of how we observe and understand our traders in terms of using our stores that ability for us to engage with them digitally is really helpful.

Shall I pick up the capital point. So in terms of the refits and new stores, we're looking at just ahead of GBP 1 million a store. New stores is a little more difficult to pin down. It very much depends on the location and the work we've got to do to put that new store in place. But there's actually not a significant difference in terms of the traditional classification of CapEx in terms of refits on new stores. IT separation, do you want to pick that one, too? Yes, IT separation, so this is clearly a large program with a significant investment to separate activity from GP. There are multiple work streams all of which are in progress and making good progress. In terms of learnings, it's difficult to say at the moment, we're working our way through the program. And a number of those programs are expected to go live over the course of 2022. But certainly, we're taking the opportunity as part of that transition to improve the way we work. And certainly, as part of the work done so far, we can see lots of opportunities to improve as we move forward. So quite a significant level of progress to date, but still some way to go and a number of those programs certainly landing in 2022.

The first question, you sort of deploy on sort of methods like correct? [indiscernible] modeling and stuff like that in terms of catchment, in terms of determining whether you've got enough stores, too many stores, et cetera, in a catchment.

Sorry, apologies, once again, the audibility was a little challenging there. Is it possible just to repeat the question?

Yes, sure. I'll take it offline.

We will now take our next question from Tom Davis from Berenberg.

Just 2 questions from me. Firstly, just in the former market, I mean, what are you seeing the competitive environment being like in DIFM at the moment, by our peers struggling to find installers given labor market tightness? And can you give an insight into the market share gains within that channel? And then secondly, in terms of gross margin, can you just give us a split in terms of the gross margin impact from like customer mix? And what your expectations are for gross margins in the coming year given lower gross margin channels will likely outperform?

I'll take one and two, you can take gross margin. The Do It For Me market, it's really hard sometimes to get your handle on this because it's so highly fragmented. Of course, there are some obvious players in there that tend to be very category-focused, are may be focused on kitchens, for example. But it is a very fragmented market, when it comes to our installer network, I mean, the thing I can say very confidently is we are doing a super job in terms of recruiting quality installers into our business. As I said earlier, we've grown that account by 700 in the last year. There's a reason we do that, and there's a very -- we do have a very distinctive proposition in this market. Not only are we the only the people that just do kitchens, we do bathrooms, we do home office, we do other projects as well. But we really just remove all of the negative side of what an installer tradesman has to worry about in the way that they work with us. And what I mean by that is we secure the leads. We do all the design. We provide all of the products. We provide all the guarantees and assurances. All they have to do is turn up and do the job, which means they love working with us because it plays to the essence of what a trade person wants, which is, can you save me time and can you save me money. And our model does that spectacularly. And I just think we're very unique in the way that we're set up in terms of our installer skill and capability, but the attractiveness to installers to come and work for us is such that it's just enabling us to grow our business. We have a strong pipeline. We can guarantee them work. We have great quality and service credentials. So they enjoy working with us. It's very hard for me to comment on competitors in terms of any challenges they may have in this area. And likewise, that does translate to share really. It is such a fragmented market. It's not one that you can readily get share on. But what we can see and what we have articulated this morning is that we will be growing our Do It For Me business back to above 2019 levels as we move through 2022. The size of our order book is more than double than it was just a year ago. So we're in really good shape. We've got a great team to get after and start installing and converting that order book to sales.

Okay. In terms of gross margin, so for 2021, the gross margin moved down by 80 basis points. Of that, about 2/3 of that is influenced by the impact and inflation and our broad approach that passes through the cash cost of inflation into pricing rather than seeking to maintain a margin recovery. So about 2/3 of that would be inflation-driven with the balance influence from mix. So the strong resurgence in local trade in the second half, in particular, -- and if I look through the lens of Do It For Me, actually, bathroom participation grew particularly strongly in 2021. If we look to the future in terms of margin expectation, certainly, as we've already mentioned, the impact of inflation is going to continue. And our approach in terms of passing that through is unlikely to change as we protect that value-driven position. And given the trend around strong growth in local trade, combined with the recovery of Do It For Me sales back to being in a position ahead of GBP 400 million of sales. Again, both of those would have a dilutionary impact from a profit margin point of view, but of course, are supporting that top-level line growth. So further moderation in margin is what we would expect in 2022.

We will now take our next question from Clyde Lewis from Peel Hunt.

I've got 3, if I may. One, I think, probably for you, David, on sort of the refit program and I'm very interested to hear the difference between the branches that have been refitted and those that haven't in terms of sort of sales per square foot. How would the old refit versus the new refits have sort of varied? What sort of gap are you seeing there? Because presumably, you've got better and smarter at sort of the refits as you've gone through? The second one was on the COVID costs. I think, Julie, you flagged -- I think it was a GBP 3 million benefit in 2021 in terms of sort of lower costs. Will there be another drop out, do you think, in the current year on the COVID cost impact? And the last one was really around spot marketing spend. Obviously, it should be a slightly more normal this year, but who knows. But I'm just wondering what sort of change do you think you'll see in terms of marketing spend for the business this year?

Okay. Thanks, Clyde. I mean, interestingly, the number we quote is in terms of sales per square foot is the aggregated number for all of stores refitted. So it is -- it is from the 151. So it includes some of the older refits as well as the newer. There's not a massive delineation between the 2 because we do take the opportunity to refresh old refitted stores as well. One of the good examples, Clyde, would be us going back to some of the older refitted stores and refreshing them for fulfillment capability given the size of the growth of Click & Collect and home delivery. So we get to still drive that efficiency in sales per square foot by really making the 4C model comes to life. The real difference does rely is between a heritage store and a refit store because of our refresh capability as well that we push through the network.

In terms of sales per square foot, just picking up that point. So we report our sales per square foot on heritage versus refit stores. They're around 30% ahead on average, and that includes the refit stores whether old or new. And if anything, we're seeing enhanced performance from the more recently fit as we move through the program. Just moving on to COVID costs. The COVID costs, we've indicated a dropout of around GBP 3 million in 2021, that dropout will be similar in magnitude in 2022. What I will say on COVID cost, so is there was some investment we made, particularly in cleaning that we're not yet stepping away from and probably is unlikely to happen in the short term, given the backdrop of ongoing COVID activity as it were. So probably a further GBP 2 million to GBP 3 million dropout in 2022. We're bearing in mind, though, we've also got full year impact of PLC costs which is going to be of a similar order in 2022, which offset that benefit on marketing?

Yes. And on marketing spend, Clyde, I mean, there's no material changes really in terms of our thinking as we look forward. Of course, you've just seen our new TV ad that we've just launched, but we are efficient in how we go to market. We use all channels, obviously, from broadcast right the way through to personalized digital channels. But the overarching spend doesn't actually move on at all in the budget this year. Of course, we manage it to that returns, but it's pretty much a flat play.

We will now take our next question from Sam Cullen from Peel Hunt.

I've got 4 actually, but hopefully, that's all pretty brief, actually. So in terms -- I think you have a pricing number for the group. Are you able to give a pricing number between the 2 divisions, the [indiscernible] and Core for last year? And also what you might expect kind of this year given current inflation rates? That's the first one. The second one is, on attracting the installer base. Do you find it easier in a hotter installation market to attract installers or more difficult? The third one is on what should we think about the kind of maturity curve for the new stores as they start to come on in 2023? And is there any kind of incremental working capital impact from those as you kind of stack them up? And then the last one is coming back on marketing. Is it kind of fair to say that you're continuing to kind of tilt marketing spend away from the trade and more towards the consumer, given the appetite that you've just shown us that's going out today a quarter past 9 or whatever is quite a different message to one we might have seen 7 or 10 years ago, when you're kind of back in there, Wickes that's got our name on it type of marketing and sponsoring talkSPORT and what have you? Is that a fair comment? Are you kind of pushing more kind of towards the consumer who will then engage the tradesmen rather than pushing to the tradesman?

Thank you for those. I didn't quite catch the first question.

I think where Sam was going on the first question was do we look through the lens of inflation through the effective the verticals of the business, which is not something we really talk about extendedly today.

No, no, absolutely. So when we talk about inflation, we're talking about the business as a whole, primarily, yes.

Yes. We don't segment it in that way, Sam. In installation base, I guess whether the market's hotter or not, we do a very good and consistent and successful recruitment in terms of installers into the business. I mean, I just have to emphasize the 700 new installer teams coming to our business. And that will account for around about probably -- I don't know, probably have about 13,000 or 14,000 guys and girls that we're working in those teams. Because obviously, an installer team is not one person. It's -- it will have a joiner, a plumber, electrician and so forth in those teams of plumber. So look, I think our proposition is winning in the market for installers. We're very easy to work with. We've got a strong pipeline of work. We let them get on with what they do best, which is fit the stuff, and we do everything else around this end-to-end. We manage the whole process. And most importantly, it's our guarantee that goes on that work at the end of it for the customer.

Should I pick up maturity curve?

Yes, you can. I'll dive into marketing.

Maturity curve. So we work on a model of a 5-year maturity curve for new stores. Clearly, we haven't opened an awful lot of new stores in recent years. So it'll be interesting to see how that evolves. If you want my view on that, I think our brand visibility and digital capability perhaps means that, that maturity curve might be accelerated against that backdrop. We'll just have to see. But we work in a model of 5 years, which is fairly typical, I think, at the moment.

Yes. And marketing, look, I think it's a really super question. And I probably forgot to mention that this year is our 50th year in the U.K. And what comes with 50 years in the U.K., as you'll know, Sam, we were a very trade and product-centric business for most of that half century. So the residual understanding that we have in the traders' mind about what extends for them in terms of quality, availability, convenience and the growth that you see through our TradePro scheme gives me confidence that we're really communicating well with our trade customers. The opportunity for our business, of course, is to continue to broaden our church in terms of appeal for customer pace, particularly through the Do It For Me market, particularly through sort of like DIY as well, which is why we are broadening the nature of our communication. The advertising store today is a classic big brand emotional ad just talking to our core purpose that we're here to help you feel house proud and it had all elements of the mix in it. But we are looking to appeal to a more female audience as well. Still like 70% of our shoppers are male, only getting towards 30% of female at the moment. So there's more to go there. And we just launched actually last evening, a partnership with Kimberley Walsh, who I think is excellent actually. But she really appeals, has big followship of 25 years plus, female. She's a big DIY-er. So we're launching a load of content with Kimberley to continue to use technology and digital and broaden our appeal to a bigger customer base.

There are no further questions. I would now like to turn the conference back to Mr. Wood, Chief Executive, for any additional or closing remarks.

Thank you very much. Well, firstly, thank you, everybody, for joining us this morning. We really appreciate it. And as I said earlier, look, it's been a great year, 2021, a really successful year, another year of growth. We really believe in this distinctive business model really have that it provides us a constant source of competitive advantages. And as such, we're going to increase our investment in our growth levers to continue to outperform the market in the out years. We have now established a new capital structure and framework. And of course, that facilitates these plans, but at the same time and importantly, gives us an opportunity to provide future returns to shareholders. So once again, thank you for listening. And no doubt, we'll come across most of you in the coming days. Take care.

Thank you.