Topps Tiles has raised £15.4m through a share issue, bolstering its balance sheet against the prospect of a further downturn in consumer spending, even as sales showed a return to growth in the first weeks of its new financial year.

Matthew Williams, chief executive, said the placing of 17.1m new shares, representing 10 per cent of the share capital, would cushion the business against a potential squeeze in consumer spending.

“We wanted to achieve some financial flexibility, so that if there is a further downturn in sales we could weather that,” he said.

Mr Williams added that if sales continued to improve in the first half, the cash injection would allow Topps to add up to 150 new stores to its 310-store UK portfolio.

In the first seven weeks of the year, UK sales rose 2.2 per cent on a like-for-like basis. However, in the full year to September 26, group like-for-like sales fell 13.5 per cent, as cash-strapped consumers put renovation plans on hold amid a stagnant property market and rising unemployment.

Pre-tax profit fell to £4.9m – less than a fifth of last year’s £27.7m – on sales down 10 per cent at £186.1m (£208.1m). Earnings per share fell from 9.55p to 1p.

The group had exceptional charges of £11m, including a £5.2m loss from the closure of stores in the Netherlands and the UK, and £5.8m for mark-to-market losses on derivatives.

Stripping out exceptionals, the group reported profit of £16.3m, outperforming management forecasts of £10.5m to £14m, due to cost cuts.

In spite of culling 10 stores in the Netherlands over the past year, Topps continued to struggle in the region, with like-for-like sales in the first seven weeks of the new financial year down 42 per cent.

Net debt was reduced from £92m to £71.2m, helped by the absence of an interim dividend. The company will withhold a final pay-out in order to accelerate the repaying of debt.

The shares, which have risen four-fold over the past year, fell 1½p to 93p on Tuesday.

● FT Comment

Topps Tiles fell victim to the collapse in consumer confidence last year, but with sales now picking up investors are hoping the company – like the economy – might be through the trough. But like all home-related retailers, Topps could be buffeted by strong headwinds in 2010, including the general election, pay freezes and potential tax increases. With that in mind, the share placing is a protective move that should help stabilise the business after its toughest year on record. After a strong run in recent months on hopes of recovery, the shares are trading on a price/earnings ratio of about 14 times, and as such look fully valued.

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