Headlam warns on profits, cites weak housing market

Headlam slid on Tuesday as it warned on full-year profits, citing a weak housing market and a deterioration in consumer spending.

In an update for the four months to the end of April, the floor coverings distributor said revenue fell 12.3% year-on-year, with sales in the UK and Continental Europe down 11.6% and 16.9%, respectively.

Headline said revenue in April did not show the expected seasonal uplift usually seen in the Spring period.

It said strategic growth initiatives have continued to perform well, with revenue from larger customers and trade counters continuing to grow. However, this has been offset by an ongoing decline in the overall floor coverings market, driven by continued weakness in the housing market and a deterioration in consumer spending.

As a result, revenue in the regional distribution business in the UK and in its Continental European business has fallen.

This has impacted profitability "despite tight cost management and other mitigating actions", Headlam, said, with a pre-tax loss for the period of £10.6m.

The group said it expects to report a "significant" pre-tax loss in the first half based on a double-digit decline in revenue. In the second half, it forecasts an improvement based on its mitigating actions and gradually improving market conditions, although it does not expect the market to return to growth until next year.

"For the full year we expect profit to be significantly below current market expectations," it said.

Chief executive Chris Payne said: "Whilst the medium-term outlook for the business remains strong, the current trading conditions across the sector have been challenging and we have seen a further deterioration in consumer spending in our markets, which has weighed on profitability.

"Despite these headwinds, the balance sheet remains strong, it is pleasing to see the strategic growth areas continuing to perform well and, with the acceleration of our strategy, we have a great opportunity to simplify our customer offer to significantly improve the group's profitability and further improve our cash position."

At 0815 BST, the shares were down 9.4% at 160p.