- Recent deterioration in trading
- Profit guidance cut by £2.5 million
- Momentum in high margin licensing
Shares in Sanderson Design (SDG:AIM) sank 16% to a two-year low of 45.5p after the luxury interior furnishings firm disappointed the market with a second profit warning in eight months, after the hoped-for improvement in trading on which previously downgraded guidance was based failed to materialise.
The wallpapers, fabrics and paints manufacturer behind the Sanderson, Morris & Co and Clarke & Clarke brands blamed its latest warning on a ‘recent worsening’ of trading conditions with the consumer confidence downturn being most acute in the UK, Sanderson Design’s biggest market.
GUIDANCE DOWNGRADED AGAIN
Chiswick-headquartered Sanderson Design now expects underlying pre-tax profit for the year ending 31 January 2025 to be ‘in the region’ of £4 million to £4.8 million.
That is well south of the £8 million estimate to which guidance was downgraded last summer and significantly below the £7.2 million Singer Capital Markets was expecting.
Group sales for the year are expected to be roughly £101 million, down from last year’s £108.6 million.
While this revenue estimate represents a shortfall of less than 5% versus the company’s previous guidance, the resultant sales mix and increased stock provisioning will have a ‘significant impact’ on full-year profitability, warned the company behind Sanderson, the quintessential British fabric and wallpaper brand granted the Royal Warrant.
Brand sales ticked up 5% year-on-year in December, but unfortunately a sharp downturn in consumer demand, most notably in the UK, has resulted in brand sales being down 13% year-on-year in the first two weeks of January.
Brand sales for the year are now expected to be down around 9% versus the £78.8 million generated in the year to January 2024 following this recent softening of demand.
Softness in the contract market in North America also held back brand product sales, although the contract pipeline remains strong.
MOMENTUM IN LICENSING
Sanderson Design also bemoaned weak manufacturing sales to third parties, but high-margin licensing, a core strategic pillar for the company, has shown ‘good momentum’ since the half-year results.
The company stressed it was ‘continuing to accelerate strategic changes and focusing on efficiency and cost savings to better position the business for the current trading environment and for future growth. The group benefits from a strong portfolio of brands, a valuable archive and exciting upcoming product launches.’
THE BROKER’S VIEW
‘After a promising December uptick in its retail channel, brand sales have slumped again in early January,’ commented Singer Capital Markets’ Matthew McEachran.
‘Although some factors should be temporary, lower volumes in its vertically integrated operations impact margins, and losses in manufacturing. Alongside other costs, profit before tax guidance has been cut by circa £2.5 million, and net cash by circa £3 million. While intrinsic value is clearly tricky to gauge, markets are paying no heed to net asset value which is circa 117p before circa 15p of design archive value.’
McEachran added: ‘Predicting an end to various cyclical or market drags has been proving almost impossible but, given the indicators, this looks to be the trough.’
