Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Group sales increased by 4.3% to GBP 966 million, demonstrating resilience in a challenging market.
- Maintained an industry-leading gross margin with gross profit ahead of last year.
- Strong operating cash flow and a robust balance sheet, allowing for continued investment and an increased interim dividend.
- Record number of customer accounts at the half-year mark, indicating strong customer engagement.
- Successful international expansion with revenue growth in both France and Ireland.
Negative Points
- Operating costs increased by GBP 22 million, primarily due to investments in strategic initiatives.
- Higher inflationary costs, particularly in property and labor, impacted existing depot expenses.
- Continued geopolitical uncertainty affecting stock levels and supply chain management.
- Challenges in the French market with slower-than-expected depot maturity and profitability.
- Increased container costs expected to add GBP 5 million in additional costs in the second half.
Q & A Highlights
Q: Could you comment on where you see market share and kitchen market volumes versus 2019 and in 2024? Also, what do you see as a realistic market share target for bedroom furniture in three to five years?
A: We believe we have taken a considerable amount of market share this year, despite the market being down by as much as 6-7%. For bedroom furniture, we see a market size of about £1.2 billion, excluding freestanding elements. We are pleased with our progress and margins so far and expect to continue growing in this segment without distracting from our core kitchen business.
Q: Can you provide more color on pricing trends and the pressure on gross margins in the second half? Also, what are your thoughts on share buybacks?
A: We are happy with our pricing strategy and have maintained a healthy balance between volume and value. We do not foresee significant pressure on gross margins in the second half. Regarding share buybacks, our priority is investing in the business for growth. We remain committed to share buybacks when cash exceeds £250 million, having bought back £300 million over the last couple of years.
Q: What are your thoughts on volume and price heading into period 21? Also, can you provide an update on the international business and the path to breakeven?
A: We have a steady rhythm for H1 versus H2, with a January price increase setting the tone. We are well-prepared for period 21 with strong lead banks and high conversion rates. For the international business, particularly France, we have made significant progress and expect to reduce losses this year. We aim for breakeven by 2026, depending on the pace of depot rollouts.
Q: Can you provide more details on the price points and market acceptance in France? Also, what is the breakeven timeline for France?
A: The French market is more contemporary in styling, and our rigid cabinets are well-received. We have made good progress in driving footfall and sales. We expect to reduce losses significantly this year and aim for breakeven by 2026, with a focus on building team capabilities and customer relationships.
Q: Have you seen any discernible sentiment boost post-election in the UK? Also, what are the current trends in input costs?
A: It is too early to tell if there is a sentiment boost post-election. Regarding input costs, there is less pressure on raw materials but continued pressure from labor and utilities. We maintain strong tension with our supply base to manage costs effectively.
Q: How are higher-priced kitchens performing, and what is the mix between new depots and mature depots in driving market share gains?
A: Higher-priced kitchens are performing well, with significant growth opportunities. We have maintained a balanced focus on opening, mid, and high-price segments. Mature depots continue to outperform the market, driven by our strategic initiatives, product innovation, and depot revamps.
Q: What percentage of your product is manufactured in-house, and what are your aspirations for this? Also, can you provide KPIs on the impact of XDCs on cross-depot shipments?
A: We manufacture around a third of our volume in-house, aiming to increase this to 40%. XDCs have significantly reduced cross-depot shipments from over 10 million pieces to well below 1 million, improving availability and customer experience.
Q: What is the medium-term outlook for depot rollouts in France? Also, how have competitors in Ireland reacted to your market entry?
A: We will build up to around 20 depot rollouts in France over the medium term, focusing on team capabilities and customer relationships. In Ireland, we have become a significant player quickly, with plans to expand to around 40-45 depots. The market is fragmented, and we have not seen significant competitive reactions.
Q: What investments are needed to expand the range of bedroom products? Also, are higher-priced ancillary products like cooktops and flooring driving more cabinet sales?
A: Minimal additional investment is needed for bedroom products as they leverage our existing manufacturing capabilities. Higher-priced ancillary products are well-received and drive more cabinet sales, enhancing the overall customer experience.
Q: How do you view the French market's acceptance of your service model compared to the UK?
A: The French market is similar to the UK in appreciating high-quality, rigid cabinets and excellent customer service. We are making significant progress in building brand awareness and customer relationships, which are crucial for our success.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
