New Store Openings And Tech Upgrades Will Advance Retail Operations

Key Takeaways

• Strategic store openings, tech investments, and TradePro expansion drive sales growth and operational efficiency, bolstering revenue and margins.
  
• Design & Installation momentum and new solar products enhance earnings, capitalizing on cross-selling and customer synergies.
  
• Despite a rise in Retail sales, Wickes faces revenue challenges due to declining Design & Installation sales, cost pressures, and increasing market competition.

Catalysts

Operates as a retailer of home repair, maintenance, and improvement products and services in the United Kingdom.

• The planned continuation of new store openings and store refits is set to drive further sales growth and potentially enhance revenue over the coming years.
  
• The investment in technology, particularly in demand forecasting and stock management systems, is yielding gains in productivity and efficiency, which can positively impact net margins by reducing costs and improving customer satisfaction.
  
• The momentum in the Design & Installation business, marked by a transition to year-on-year growth in ordered sales, suggests an uplift in this segment, which can contribute positively to revenue and earnings as this trend continues.
  
• The expansion and strategic focus on the TradePro scheme, with a 14% increase in sales and more active members, indicates potential for sustained revenue growth, driven by higher transaction volumes.
  
• The integration of solar installations and other new product offerings may enhance earnings growth as the Wickes brand capitalizes on cross-selling opportunities and synergies with their existing customer base.

Wickes Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wickes Group's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 2.7% in 3 years time.
• Analysts expect earnings to reach £47.4 million (and earnings per share of £0.2) by about July 2028, up from £18.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £55.5 million in earnings, and the most bearish expecting £42.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, down from 28.9x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.25%, as per the Simply Wall St company report.

Wickes Group Future Earnings Per Share Growth

Risks

• The overall revenue for Wickes Group declined by 1% in 2024 compared to 2023, with a notable 10.5% drop in Design & Installation sales, which could suggest challenges in sustaining comprehensive revenue growth despite a rise in the Retail segment by 1.9%.
  
• Wickes has experienced cost inflation, particularly in wages due to increases in national living wage levels, which could pressure net margins unless offset by efficiency initiatives.
  
• Wickes’ ability to maintain market share and mitigate competition from other home improvement retailers is crucial, as increasing consolidation and competition in the market could potentially impact revenue streams.
  
• Despite efforts to offset declining big-ticket item sales in the Design & Installation sector, the fact that this segment historically has been a drag on profitability poses a risk to future earnings if market demand does not sufficiently recover.
  
• The ongoing need to manage deflation in the Retail sector and the uncertain economic environment could impact Wickes’ ability to effectively manage pricing strategies and sustain gross margins.

Valuation

• The analysts have a consensus price target of £2.34 for Wickes Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.29, and the most bearish reporting a price target of just £1.95.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £1.7 billion, earnings will come to £47.4 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 12.3%.
• Given the current share price of £2.2, the analyst price target of £2.34 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.