Topps Tiles hits yet another bottom but where's the floor?

Since the start of the year its shares have continued to fall from their 12-month peak of 309.75p to a current low of 113.5p, which represents serious underperformance even when compared with the rest of the retail sector that has fallen back by something like 50 per cent over the past year.

The trading statement certainly didn't help matters with its disclosure that Topps expects to report a like-for-like decline of 0.5 per cent for the 26 weeks to March 29, which compares with a much chunkier 4.4 per cent for the same period last year, and a fall in operating profits from £21.3 million last year to £21.3 million this first half.

This represents a deteriorating performance since the group released its post-Christmas trading statement when it reported like-for-like revenue had increased by 0.8 per cent for the first 13 weeks of the current financial year. The UK was then showing overall revenue growth of 6.6 per cent but this has fallen to 4.1 per cent for the whole of the first half.

Unfortunately for Topps it cannot point to its overseas operations as providing some respite from the worsening situation in the domestic market. Its stores in Holland are expected to deliver a like-for-like decline of three per cent compared with an impressive increase of 19 per cent last time.

The company also appears to have put a brake on opening new outlets in Holland as it stated in January that it would open five units this financial year to add to its existing 20 but it now says it will only open one or two in the second half having not added any new outlets in the first six months.

This makes sense and fits in with Topps' modest opening programme in the UK that has seen it open eight stores in the first half, which puts it on target to hit its planned 20 openings over the course of the full financial year. This will take its estate to almost 320 stores in the UK.

Although Topps' management expresses confidence in the robustness of the group's business model and how it will serve them well over the current difficult trading period they leave no doubts about how tough the market is for the group. Like a growing number of other retailers Topps is now making comments to suggest that it does not expect the economic climate to change in the short term. It seems to have come to the conclusion that this downtrend is not now going to suddenly disappear overnight as some parties had predicted when the term credit crunch was first bandied around.

Although there appears little positive spin to put on the Topps story at the moment its positioning in the market must be regarded as stronger than some other specialist operators who are also reliant on a buoyant housing market such as ScS and Land of Leather.

Topps' PE of around 8x puts it on a much fuller valuation than this pairing, that both languish on a mere 2x, and closer to its stronger peers Kingfisher (owner of B&Q) and Carpetright that are both on more than 10x. However, it is a brave person that puts a floor on the share price of any retailer in the current climate, regardless even of something as fundamental as its valuation.