Topps Tiles PLC (LON:TPT) may be operating in a tough market but it is better placed than its rivals to weather the storm, Liberum maintains.
In the wake of a fiscal third-quarter trading update, the retailer’s house broker conceded that there had been some weakening in like-for-like (LFL) sales in recent weeks.
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The first three weeks of the 13-week trading period saw LFL sales down 0.2% year-on-year but by the end of the period, this had deteriorated to a decline of 2.3%.
Although this was in line with Liberum’s projections of a 2.5% year-on-year decline in LFL sales in the second half of the financial year, “we understand that there has been some volatility over the period, with more recent weeks seeing greater declines,” it said.
The weakening sales trend, along with slightly more prudent store opening projections and gross margin assumptions, prompted the broker to lower its profit before tax forecasts by around 5% for the current year and the next two years.
Previously, Liberum had looked for full-year gross margins to increase by 0.3 percentage points year-on-year but it now reckons they will be more or less unchanged.
The target price has been cut from 95p to 90p but with the shares languishing at around 62p, the shares are still a buy in Liberum’s book.
“While there is clearly uncertainty surrounding market conditions for the remainder of the year, good cost control should provide some support. We also believe Topps' leading, specialist market position leaves it better placed than its rivals to weather the softer trading conditions,” Liberum said.
Liberum believes the uncertain backdrop could persist “for at least the near-term”. It also noted that the year-on-year comparative for the fourth quarter is “somewhat tougher” than the comparative for the third quarter.
A year ago, the fourth quarter LFL sales decline was 3%, while the third quarter LFL sales decline was an easier-to-top 4.7%.