Wickes Group plc (WIX) Earnings Call Transcript & Summary

Good morning, everyone. It's great to have you here with us today, whether in the room or joining us online. Welcome. Over the next 20 minutes or so, myself and our CFO, Mark, will walk you through our first half results for 2026, breaking down our business performance, exploring broader market trends and sharing how our proven growth levers continue to drive market outperformance. Overall, this has been a strong period for the business. I'm pleased to report that in retail, we have continued a strong volume-led sales growth trajectory despite a deflationary pricing environment as more customers turn to Wickes more often. Within design and installation, customers continue to react positively to the enhancements made to our kitchen and bathroom proposition, resulting in our fifth consecutive quarter of positive like-for-like growth. Together, group revenue increased 2.1%. The benefits of delivering sustained volume growth alongside our productivity plan resulted in a 1.1% increase in adjusted profit before tax to GBP 27.6 million, all delivered in the absence of any market tailwinds, a clear demonstration of the strength of our self-help growth levers. Looking ahead, continued sales growth and our productivity program will further support profitability in the second half. Our proven growth investment in our store estate continues. In the first half, we refitted and refreshed 8 stores with a further 4 planned in the second half. We also remain on track for 4 to 5 new stores within the year to go, whilst building a strong pipeline to support our accelerated ambition of 300 stores. We are delivering attractive returns to shareholders and have announced today an increased interim dividend of 2.8% to 3.7p, signaling our intention to grow dividend and dividend cover as profits increase. We have completed the GBP 10 million share buyback and also funded a further GBP 9 million worth of share purchases for the Employee Benefit Trust. As anticipated, trading so far in Q3 has shown a significant step-up with mid-single-digit like-for-like revenue growth in retail as we remain on track to meet market expectations for adjusted PBT this year. Before I hand over to Mark, I'd like to take this opportunity to thank all of my brilliant colleagues for their incredible work in delivering these results. Thank you.

Thank you, David, and good morning, everyone. As David mentioned, we had a good first half with growth in both sales and profits. This slide has a summary of the highlights. But as we cover all of these points in other slides, I'm going to skip over this one. So on the next slide, we have a summary of the P&L. We grew sales in the first half by 2.1%. In retail, this was 0.8% growth and design and installation, 5.7% as we work through the healthy order book built up during 2025. Gross margin rate was broadly flat with just 0.1 percentage point movement. Operating costs grew by 1.9%, with productivity helping to offset some of the cost inflation we've experienced. A couple of examples of productivity initiatives that we've delivered in the first half. In design and installation, a new online journey for booking appointments has improved the customer experience and lowered our customer call center costs. Also in design and installation, a big focus on right first time from design to delivery is reducing costs and improving customer satisfaction. Also within operating costs is a step-up in investment in tech and in property, and a bit more detail on this in a moment. Overall, the PBT margin in the first half is flat year-on-year. With an uplift in both sales growth and productivity in the second half, we expect H2 to show a good step-up in profit year-on-year and as a result, deliver an increase in PBT margin for the full year. So let's look at the P&L drivers in a bit more detail, starting with sales. In retail, we've seen an improving trend across the year so far. In Q1, adverse weather meant sales were in slight decline, but this improved in Q2. And as David has mentioned, we've seen this step up significantly in Q3 so far. In all quarters, we've seen good volume growth with deflation in the business of between 2% and 3% in the first half, as you can see on the table there. Now we expect to see inflation turn positive in Q4. It's also worth reflecting on the 2-year like-for-likes because we were lapping a good H1 last year. As you can see in the table, even with very tough trading conditions in Q1, the 2-year like-for-like for the half was still 6%. In design and installation, we've now had 5 consecutive quarters of delivered sales growth following a strong performance in ordered sales last year. In the first half of this year, we've seen an increase in the number of new projects sold. However, with a shift in mix towards lower AOV projects, bespoke bathrooms and lifestyle kitchens in particular, overall ordered sales have been slightly down. This will result in a flatter profile for delivered sales growth in H2. So now turning to the profit bridge, which helps highlight the key drivers of our H1 performance. The 2.1% sales growth gave us GBP 10 million of margin upside, offset by GBP 5 million of volume-related costs. In terms of other operating costs, you can see here that inflation remains a headwind. And whilst we've continued to deliver some good productivity savings, they have not fully offset the cost inflation. A further cost saving shown separately here is that we've saved about GBP 1 million in business rates in the first half, and this will be about GBP 2 million in the second half. We continue to invest in the business to drive future growth and productivity. And as you can see here, in aggregate, this has stepped up by around GBP 5 million year-on-year. This is mainly investment in technology and the OpEx cost of our property development plan. So a good performance on profit given the challenging trading conditions and the inflationary headwinds. So turning to cash. We are a cash-generative business. And even in a challenging economic environment, we can generate cash to reinvest in the business and deliver good returns to shareholders. We ended the period with GBP 152 million of cash. Now as you know, the half year is a high point for our annual cycle and the significant improvement in working capital in the first half will unwind in the second half. A couple of other things to note on this bridge. CapEx this year will be H2 weighted with much of our property program happening in the second half. In H1, we had GBP 11 million of cash out for CapEx, and we expect around GBP 14 million for the year as a whole. Also in the first half, we've returned GBP 26 million to shareholders, GBP 16 million in dividends and GBP 10 million in share buybacks. We've also funded the EBT by a further GBP 9 million. So overall, a very healthy cash position, enabling us to fund our growth strategy whilst also delivering good returns to shareholders. I'll end with some comments on outlook and guidance. So far in Q3, as anticipated, we've seen a significant step-up in performance with retail sales in mid-single-digit like-for-like growth. This strong sales growth plus the additional cost savings expected in H2 mean we are on track to meet market expectations of around 10% growth in PBT for the year. Now we've also provided here the usual guidance on tax and CapEx, et cetera. And just as a reminder on dividend, we plan to grow the dividend and the cover as profits increase. And as David said, we started today that process by announcing a 2.8% increase in our interim dividend from 3.6p to 3.7p. So in summary, the business has had a good first half. And as we move into the second half with improving sales in Q3, we are well placed to deliver another good year of profit growth in 2026. With that, I'll hand back to David.

Thank you, Mark. This slide simply illustrates the clarity and consistency of our strategy that is working so successfully, enabling us to drive growth and market outperformance while supporting our purpose to simply help the nation feel house proud. Over the next few slides, I'll share how we're investing in these growth levers to continue to win in the market. But before I do that, let me share some headline insight into current consumer trends that we are seeing from our monthly Mood of the Nation survey. Encouragingly, we see a high degree of stability of where the customer is right now. Local trades still tell us they are busy with around 30% having a healthy 12-month plus pipeline of work. One in 5 customers in the market plan to take on a new kitchen or bathroom project, and spending plans have remained stable over the last few months. We can see in our own performance data that customers are looking for more affordable solutions for bigger projects. And in DIY, people remain keen to improve their homes with 1 in 2 consumers planning to decorate a room over the course of the next 12 months. Speed and convenience continues to be important to them as seen in the growth of our 15-minute Click & Collect, Home Delivery and Wickes Rapid propositions. We are particularly pleased that sales growth in retail is purely volume-driven, and this is all down to more customers shopping with us in-store or online. Our TradePro membership scheme goes from strength to strength with sales up 5%, driven by a record level of 671,000 active members. Our market share in retail has increased again year-on-year with a number of key range reviews driving outperformance, in particular, in decorative, which is an all-time market share high, and gardening and timber, all supporting growth in our DIY customer base. We continue to focus on what matters most to our customers, certainty of value, clarity of choice, speed and convenience. Our digitally led service-enabled model delivers that promise seamlessly, driving 7% growth across Click & Collect and Home Delivery. We know that customers value the products and services we offer, and we see this very clearly in our customer satisfaction metrics. For example, 86% of customers rate our 15-minute Click & Collect service as excellent or good, and that rises to 90% for our Home Delivery service, which we uniquely operate from all stores. As we turn to design and installation, delivered sales in this part of the business have been strong for the last 5 consecutive quarters as customers react positively to our breadth of offering across good, better and best ranges. We have achieved volume growth across the total number of projects served, a result not just of great innovation in the more affordable segment of the market, where we now offer 23 ranges of lifestyle kitchens, but also encouraging customer engagement in our top-end hand-painted paint-to-order range. And in bespoke bathrooms, we've seen success with the new Bayswater collection, which you can see on the right and a host of new fitted and modular furniture. Crucially, our customers are telling us that we're hitting the mark. 96% rate us excellent or good from lead to order. We have successfully rebased the Wickes Solar business and are now back in growth through high-quality lead generation and customer journey with strong conversion. In addition, we will install solar on a further 5 Wickes stores this year and have some interesting B2B opportunities in the pipeline. Turning now to investment in our store estate. The strong performance of our existing and new stores alongside our proven ability to operate successfully in smaller footprint stores led us to announce earlier this year our scale-up ambition to reach a network of 300. Our plans are on track. And in the first half, we have refitted or refreshed 8 stores, with 84% of the estate now in the new format, with a further 4 to come in the year. We also plan to open 4 to 5 new stores in the second half, with Saffron Walden opening this week. We continue to strengthen our future property pipeline, focusing on white space opportunities and underserved larger towns and cities. For 2027, we plan to open between 7 to 9 new stores, and we would accelerate to 10 plus per year from 2028. Moving on to our responsible business strategy, which is embedded deeply within our business. When some of you join us on store tours, you can often meet leaders who started at Wickes straight out of school and now run GBP 10 million stores. We are incredibly proud to be a destination for early talent with around 30% of our store colleagues aged 16 to 24. Through our dedicated training programs, we are actively equipping the next generation of retail leaders. Tool theft affects over 1/3 of U.K. tradespeople, costing them 2,500 on average, impacting their ability to work and in some cases, really affecting their mental well-being. In the first half, we stepped up for our trade community, pledging to protect well over 0.25 million power tools across the U.K. this year by providing free tool marking kits in stores. And we are well on our way to hitting our GBP 2 million fundraising target for our charity partner, CALM, having already raised an incredible GBP 1.3 million to date. And it is fantastic to be recognized for all of the work we do as part of our responsible business strategy with highly positive ESG ratings. We maintained our AAA rating in MSCI, and we continue to be included in the FTSE4Good Index, having improved our latest score from 4.2 to 4.4 out of 5. So to conclude, we have made great progress in the first half, growing volume, sales and profits through the strength of our own self-help levers, really demonstrating our value-led and highly differentiated business model. Our growth momentum through the first half has continued to build in Q3. And whilst we are winning market share and growing volume, there is still so much more to go for. Today, we hold just 5% of the GBP 35 billion addressable U.K. home improvement market. The headroom for growth is tremendous. That is why we are accelerating our property ambition going further and faster to expand our store footprint by 30%. This is all underpinned by our strong cash flow generation, enabling us to invest in our proven growth levers and deliver attractive shareholder returns. Thank you for listening. Mark and I will now be happy to take any questions.

Ben Hunt from Panmure. Do you think you could just flesh out a little bit more about those cost savings you're expecting in the second half and maybe that inflation headwind? Do you see it easing with the wage inflation coming down? Or any color really on the H2 bridge as it were?

Yes. So firstly, on the cost savings, we've got a continuation of initiatives that have started earlier in the year. So we've got a good line of sight as to how that's going to evolve, in some cases, getting more of a 6-month benefit rather than a partial benefit in the first half. So we're now really starting to focus on the initiatives that are going to be our productivity plan for 2027. So I think we're very confident in what's coming in the second half of 2026. In terms of the inflationary headwinds, the wages and general employment cost headwinds have slowed down a bit. Obviously, the big increase that came in national insurance and the higher levels of increase in National Living Wage are behind us. So hopefully, now we'll see more normal levels of wage inflation, which will be good. Obviously, we don't yet know what the government will agree on the November increase in National Living Wage, but we're expecting that to be a lot lower than in recent years. So the one to watch out for, of course, is energy costs. As you know, we've got about 50% of our energy costs hedged into 2027. So fairly well protected there. But obviously, that's a moving thing in the market at the moment.

Okay. And second, I was delighted to hear your opening of Wickes in Saffron Walden. I was just wondering if you could just tell us a little bit how the smaller format stores are performing, whether they're in line with the usual opening maturity -- how the maturity is, when they start to break even and any sort of details around that?

I think -- I mean, if we step back from it, we've had a number of small stores in our network for a while. So it's probably sort of somewhere between 20 and 25 of our store counts like fit that smaller 15,000 to 20,000 square feet. As we sort of illustrated at the full year when we're talking about our ambition, what you can see is although the revenue on average is slightly lower, as is the cost of running those stores. So the EBITDA net-net is actually equivalized across the estate. So we know we can still deliver great value creation from a smaller store footprint. Saffron Walden, interestingly, will be the first of those new ones. So as I say, Friday, if you're around by all means, come and join me, we're quite excited. And then Harrogate, as we look forward, between now and Christmas will be even smaller as a store with a mezzanine as well. So we'll learn more about the new stores as we move into next year, but our confidence in finding the ability to get greater depth and reach of the network through a smaller store footprint is predicated on the fact that sort of like 10% of our estate is already like this, and we can see how that performs, which, on balance, creates a similar value to the estate at large. The mic is over there, Matthew. Matthew, we're going to lead with the mic.

Lewis Roxburgh from Goodbody. Just one, please. Just how generally should we think about pricing? Obviously, we've seen some deflation over the period. Costs are increasing. So how do we interpret that? Is there a lag effect happening? Are you struggling to sort of pass through inflation? Or are you sort of happy remaining cost leader and gaining market share, really?

So through the year so far, as we said, we've seen deflation, but we're now, as we come towards the end of Q3, starting to move into inflation. So we expect positive inflation in Q4. Our priority, really, is that we're a price leader in the business in the market. We aim to be 2% to 3% cheaper on a basket than our key competitors, and we monitor that every week. And we want to deliver great value to customers and drive profit in the business, not by increasing gross margin, but actually getting the flywheel of volume going and getting operating leverage through the business. So you've seen that the margin is flat. However, all of the pressures coming through our sector are starting to come through, and we are going to see some inflation in Q4. And that will just make it a little bit easier, obviously, when you've got 2% to 3% deflation in the product that you're selling, but you've got cost inflation of 3% or more in your operating cost, that's clearly very challenging. So that's going to be more balanced as we go forward.

Matthew McEachran from Singer Capital Markets. Can we just ask for a little bit more information on the D&I side? I mean it's clearly you've got a lot of initiatives working through. You showed us the design tools improvement on that site visit. The product range has improved, and the service element is also improving. Could you just remind us as to what you've done so far in the first half? And how much is still pending as you go through to the next peak? And related to that question, will there be a kind of step-up in marketing once you've embedded the suite of changes, if you like?

Gosh. There's a lot of questions in there. I'm going to do my best to take all of them on board in one go. Look, in the first instance, there's been some really good broad-based innovation in our design and installation business. And it's interesting because it's -- when you look through the kitchen business, that innovation has been much more predicated at the more affordable end. And we spied that coming a couple of years ago. We started to develop the lifestyle range, integrate it into the showrooms, make it a more prominent and equal part of the overall customer journey, and then subsequently expanded that business to 23 ranges, which we market through all of our communication channels, and we're seeing great volume growth there. So what we're seeing in the kitchens business is overall great volume growth in our lifestyle business, a more muted performance in sort of like the higher end at the moment. But interestingly, we are innovating right now for the return to growth in the sort of like the better and the best part of the portfolio. So we're extending our paint-to-order, hand-painted ranges. So in the same way, we anticipated the more affordable requirement in the market, we're also anticipating as the economy recovers that we'll be well placed to capitalize on that as well. So we're very happy with that performance, but the AOV is down because of that. It's interesting on the bathroom side of the business because the innovation focus actually has been about adding greater value, adding more premium brands. So on the bathroom side of the business, we are growing volume very strongly, and we are actually growing AOV. But in the round, that mix gets washed out a little bit when you look at design and installation in the first instance. But I guess the really important point here is, as a business, we are taking more orders. We are serving more customers. The blended AOV is down on traditional sort of like numbers where we can feel, hence, a more muted sort of like performance in terms of the ordered sales line. But we're winning where we can, which I think is a great outturn, and we're well placed to win again as the market recovers for the more high-end stuff in the first instance.

And in relation to marketing?

No particular step-up. It's just a continuous process throughout the year of our campaigns.

Ben from Deutsche Bank. Just one question on that Q2 acceleration in retail like-for-like. Are you able to talk a bit more on the drivers of that? Obviously, you've mentioned inflation, which is helpful. But any indication on which kind of categories have been performing well would be really helpful.

Probably just a point of correction. We're not seeing actual inflation in Q3. We're just about to exit Q3. That's a more modest to slightly declining inflationary period. We expect it to come through as we move through Q4. And again, at a more modest level, I think it's fair to say in the first instance. So there isn't an inflationary benefit in Q3. Look, Q3's performance is much as we had anticipated, and we're keen to point that out. We could see where we were going from Q1 into Q2 and expected that to start to flow through as we got into Q3 because we're always pretty confident that the projects needed to get done. The growth of that -- so we are mid-single-digit like-for-like performance so far Q3, we're 11 weeks in. So that's a really solid performance. And it is simply doing what we always do, which is growing our customer base. So this is a volume-led performance. There's no inflation in there and it's growth of customers across both trade and DIY. So it's continuing to execute the strategy we have and just do it brilliantly. There's no seismic change in there, Ben. We had fully anticipated this profile as we were coming through the year.

Some of the drivers we could call out, particularly on the digital side of the business has been going very well. So as David mentioned, the popularity of Click & Collect, our Home Delivery service, Wickes Rapid, which is the same-day delivery service. All of those areas are in good growth. And that sort of desire for convenience from the customer is really strong, and we're delivering on that really well. So that's been a good standout as part of that retail step-up.

And importantly, as you would have seen in the Mood of the Nation survey, our trade customers, in particular, our most strategically valuable customers are busy. 30% of them have a pipeline for the next year plus. That's slightly up versus the average to be fair.