Grafton cautions on outlook as UK sales dip

Grafton Group said its UK merchanting sales dipped last month and warned that Brexit is likely to dampen demand for new housing and home improvements for the remainder of the year in its most important market.

Growth in UK merchanting like-for-like sales, which make up more than 70 per cent of group revenues, slowed to an annual 1.6 per cent in the second quarter from 5.3 per cent in the first three months of the year. Sales turned negative in June.

”The referendum decision in the UK to leave the European Union has created uncertainty about the near term outlook and prospects for the economy and this is likely to weigh on demand in the new housing and [repair, maintenance and improvement] markets over the remainder of the year,” said Gavin Slark, group chief executive.

Still, Grafton said its trade-only Selco Builders Warehouse business in the UK “is a proven resilient model and continues to be the focus for development capital in the UK.”

Elsewhere, Irish merchanting like-for-like sales rose by 10 per cent in the second quarter, while Belgian sales declined 9.5 per cent. A recovery in retail sales in its Woodies’ DIY business in Ireland has continued so far this year,the company said.

Dutch retailing sales rose 4.2 per cent, but manufacturing sales dipped 1.8 per cent in the latest quarter, it said.

"Growth in the Irish and the Netherlands merchanting markets is expected to continue broadly in line with recent trends," said Gavin Slark, group chief executive.

Goodbody Stockbrokers analyst Robert Eason said the 4.2 per cent increase in like-for-like group sales in the first half of the year was broadly in line with his expectations, though weaker-than-expected UK and Belgian performances were offset by strength in the Irish and Dutch businesses.

“We believe the risks to forecasts across the sector lie firmly to the downside and estimates will likely have to incorporate declines in underlying sales for the next 12 to 18 months,” Mr Eason said. However, he said Grafton will be cushioned somewhat by its Selco business, more favourable Irish and Dutch markets and balance sheet strength.

Mr Slark said the group’s “financial strength and geographic diversity leave it well positioned to take advantage of any opportunities that may emerge across the markets in which it operates.”

The chief executive said in May that he may target further acquisitions in the Netherlands after the “excellent” timing of its entry into the market late last year with the €91.5 million purchase of a tool distributor there.

Grafton said on Tuesday that growth in the Irish and the Netherlands merchanting markets is expected to continue broadly in line with recent trends.