Safestyle suffers as consumers put purchases on hold

Safestyle said it has continued to grow market share
Safestyle said it has continued to grow market share
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Shares in double glazing ​firm Safestyle UK plunged ​nearly ​30​​ per cent after the group issued another profit warning, blamin​g​ ​weaker consumer confidence as consumers rein back on spending.

In July, the Bradford-based​ ​firm ​warned ​that uncertain market conditions and weaker consumer confidence ​meant that annual profits​ would be lower than previously expected​​.

On Friday ​it said that trading over the past two months has deteriorated further and order intake has ​"​declined beyond the ​b​oard's expectations​".

In a trading update the group said:​ "​The ​b​oard believes this is due to an accelerating weakness in the market resulting from increasing consumer caution, as evidenced by the latest FENSA statistics, which show that the overall market has deteriorated further, with installations down by 18​ per cent​ in June and July compared to 2016.​"

Despite this, ​Safestyle ​said it ​has continued to grow market share and remains well positioned in the event of a market recovery.

However, given the marked change in market conditions, ​it​ now expect​s​ ​f​ull ​y​ear revenues to be flat year on year. At the same time, ​its​ efforts to drive order intake are incurring additional costs, ​which has hit margins and will lead to a "material​"​ impact on full year profits.

The ​g​roup ​said it ​remains cash generative, with a significant cash balance and a robust balance sheet​ and it will announce further details ​when it reports interim results on September 21.

S​afestyle's shares closed down 29.9 per cent, a fall of 70.5p to 165p.​

Analyst Matthew McEachran at N+1 Singer said: "Safestyle has released an unscheduled update indicating market conditions have sharply deteriorated. FENSA indicates installations down 18​ per cent​.

​"​While S​afestyle​ continues to take share, margin has been significantly impacted. We forecast 320bps deterioration in ​the second half​ v​ersu​s prior assumptions.

​"​This and lower sales means ​pre-tax profit has been downgraded 17.5​ per cent​ this year and 18.6​ per cent​ next year. Net cash forecasts are reduced by a similar amount but are sufficient to hold the dividend at last year’s level. With a new target price of 180p (v​ersu​s 225p) we reiterate our ​'s​ell​' recommendation.​"​

Analysts at Liberum said in a note: "Safestyle has today warned that its order intake deteriorated in July and August, with management citing a fall in the overall market as consumers become more cautious.

​"​Slower lead generation has pushed up the cost of leads and gross margin will also be hit by a rise in the take-up of promotional finance.​"

Liberum has cut its share price target by 25​ per cent​ to 215p, but ​said​ the shares could overshoot​ this​ given the surprise of th​e​ statement.

​"​In support of the shares, we note the high dividend yield (​around ​5​ per cent​) and cash on the balance sheet (7​ per cent of​ m​arket capitalisation)," they said.

"Management still has many levers to generate out-performance and we see cost reduction driving profit progress in 2018.​"​

Safestyle is the latest Yorkshire firm to warn on profits following worries about the UK economy.

Last month, s​ofa chain DFS ​Furniture blamed the ​uncertain economic environment​, the unexpected General Election​ and warm weather for a 4 per cent fall in second half sales.

​The Doncaster-based group confirmed that profits will take a hit ​following weak​er​ trading at its stores.

The retailer ​reported "significant​"​ declines in store footfall and customer orders ​between April ​and​ June.

​In a stock market update, the retailer said: "The second half has been weaker than we expected owing to significant declines in store footfall and customer orders across April, May and June.

"We believe this to be an industry-wide issue, resulting from the ​​uncertain economic environment and unexpected General Election, exacerbated by warm weather in May and June."

T​he economy has been thrown into doubt following the shock outcome of the General Election which resulted in a hung parliament. In times of doubt, consumers tend to put on hold the purchase of big ticket items such as a new three piece sofa or double glazing.

​DFS described the UK furniture market as "very challenging" with an uncertain outlook.

​It said​ it will seek out efficiency savings as revenue growth becomes harder to achieve in the short term.