This morning’s Interim Trading Update for the six months to end July from Sanderson Design Group (LON:SDG) showed a very solid performance by the luxury furnishings business despite various pressures with supply, cost price inflation and other hassles like ceasing its business with Russia.
The reorganisation, that was set underway since the change in leadership in 2019, has helped to progress the group and the first six months showing looks set to lift both sales and profits for the current trading year to the end of January 2023.
What the company does
Sanderson Design Group designs, manufactures, markets, and distributes luxury interior furnishings, fabrics, paints and wallpapers worldwide.
The company, which has showrooms in Chelsea Harbour, London; in Manhattan, New York, in Chicago, Dubai and Amsterdam, serves designers, retailers, distributors, and architects.
Employs some 600 people the company operates in two segments, Brands and Manufacturing.
The Brands segment designs, markets, sells, distributes, and licenses Sanderson, Morris & Co., Harlequin, Zoffany, Scion, Clarke & Clarke, and Archive by Sanderson Design brands.
This segment offers wallpapers and fabrics, homewares, window coverings, furniture items, bedding products, cushions, paints, scarves, and leather goods.
The Manufacturing segment manufactures wallcoverings and printed fabrics.
It has a strong UK manufacturing base comprising Anstey wallpaper factory in Loughborough and the Standfast & Barracks fabric printing factory, in Lancaster. Both sites manufacture for the Company as well as for other wallpaper and fabric brands.
In addition, the Company derives licensing income from the use of its designs on a wide range of products such as bed and bath collections, rugs, blinds and tableware.
Recent tie-ups looking good
Recent agreements with Harrods, NEXT, Bedeck, Ben Pentreath and Sophie Robinson are all very encouraging.
So too is todays note that the Williams Sonoma kitchenware partnership with Morris & Co., initially signed in August 2021, has been extended by two years to 2025, displaying the major US retailer's confidence in the brand and products, which are due to launch next month.
Brand product sales in Northern Europe were impacted by the previously announced decision to cease trade in Russia, resulting in the loss of £0.8m of sales compared with H1 FY22. Without those two factors, Brand product revenue at £42.2m was up just 1% year-on-year.
Overall, third-party manufacturing performed robustly in the first six months of the year, given the strong comparator at the same time last year as customers emerged from Covid and commenced restocking.
Total licensing revenue was up 90% at £3.8m (£2.0m), driven by £1.9m (£0.5m) of accelerated income from recently signed licence agreements.
The Group's liquidity position remained strong with net funds of approximately £15.0m (£15.4m), compared with £19.1m on 31 January this year. That reduction partially reflects a strategic investment in inventory of the best-selling collections.
Remaining vigilant of the world economic environment
Obviously current market conditions are difficult to predict, however the Management it is planning for a wide range of possible scenarios in the second half.
Despite that, it appears that full year trading currently remains in line with the Board's expectations.
The Group's strong cash position enabled continued investment in the business and also provides protection in the event of any material adverse changes in trading conditions.
Lisa Montague, CEO stated that:
"I am pleased to be reporting good strategic progress in the first six months of the year. It is encouraging to see licensing partnerships with major retailers both in the UK and US being extended, underpinning their belief in our brands and products.
"The two-year contract extension with Williams Sonoma, a leading US retailer, signals the confidence it has in the strength of a collection that is yet to launch, and emphasises the progress we are making in the US, a core growth market for the Group.
"We retain a rather cautious outlook, mindful of the cost, supply chain and consumer confidence issues that impact the macro-environment, though we are committed to delivering further strategic progress during the remainder of the year."
David Jeary at Progressive Equity Research noted that strong performances were delivered by the Morris & Co brand, Licensing, and in the US market, all of which delivered superior margins.
Ahead of the interims being reported on 11 October he is maintaining his forecasts for the year at £119.1m sales (£112.2m) and fully adjusted pre-tax profits of £13.0m (£12.6m), with earnings of 14.7p (13.6p) per share.
Bouncing ahead into the coming year to end January 2024 Jeary goes for £128.4m sales, £14.0m profits and 15.8p in earnings per share.
Last night the shares closed at 117p but eased 3.5p to 113.5p on today’s Trading Update, at these levels they offer investors in this international premium brand business a very attractive upside potential.