Warning from Travis Perkins deepens retail gloom

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The Independent Online

The gloom hanging over Britain's retailers deepened further yesterday after the buildings materials group Travis Perkins warned that profits this year will fall well shy of City expectations.

Travis shares were thumped 129 to 1,284p on confirmation that a slowdown in the British housing market has hurt its core business supplying tradesmen.

Meanwhile its DIY chain Wickes is suffering at the hands of a slump in consumer confidence and fewer house moves. Sales at Wickes, which have been squeezed by stiff competition and cut-throat pricing, are going from bad to worse. In shops open at least a year, sales were 9 per cent lower in the four months to the end of October than in the same period last year, against a 6.2 per cent decline for the first 10 months of its year.

Travis piled on the misery for shareholders by cautioning that trading conditions are likely to be tougher than usual this winter, with the prospect of an extended holiday shutdown in the building industry. The company reiterated its warning of two months ago that it sees no light at the end of the tunnel until at least the middle of next year.

Full-year pre-tax profits for the group may now reach only a disappointing £205m in 2006, about £20m short of previous estimates and 23 per cent less than last time. Some experts rejected Travis's claims that the warning was a result of factors beyond its control.

David Taylor, atTeather & Greenwood, was scathing about Travis's £990m acquisition of Wickes in February and the company's future. He said: "This profits warning was entirely of the company's making. The Wickes deal was just appalling. You had a well-run, tidy, together UK builders' merchant, the biggest in the sector, respected as being the best run. Then suddenly, the retired chief executive had this moment of epiphany and decided to spend £1bn on a DIY retailer at the top of the cycle."

The chief executive of Travis, Geoff Cooper, insisted the purchase of Wickes, which accounts for about 30 per cent of the group's turnover, had been the right move and hit back at Mr Taylor for failing to take on board the company's point of view. He said: "The Wickes acquisition is a good acquisition. It's an extremely good fit and has performed well in a tough market. We knew that we were buying at the top of the cycle. We assumed that the market was going to decline in 2005. What we did not know was by how much."

Mr Cooper blamed the profits warning on wider economic malaise. A survey of consumer confidence from Nationwidethis week revealed that Britons are at their most downbeat since the monthly poll was launched last year. Job losses at Rover, the July terrorist attacks on London, swelling fuel costs and limp house-price growth are giving consumers sleepless nights, the building society said. On top of that, personal insolvencies are at their highest level, household debt stands at £1 trillion, and business failures and home repossessions are on the up. Also, interest rates and taxes may rise.

The grim news from Travis, which has 750 branches across the country, cast a pall over others in the sector. Kingfisher, owner of the B&Q DIY chain, fell 3.75p to 214.75p, while the plumbing-equipment supplier Wolseley lost 6p to 1,190p on the back of the 21 per cent decline in sales of kitchen and bathroom showroom products at Wickes.

MFI, which warned last month of a loss for the fiscal year and ousted chief executive John Hancock, was also hit. Its shares tumbled 12.25p to 71p on fears MFI's Howdens Joinery building-supplies business has fallen off sharply in the past couple of weeks.