FY26 off to a flyer – strong sales momentum and gross margins

G4M’s full-year results to 31 March were in line with guidance given in its year-end trading update in April. The most important aspect of these results, however, is a further strengthening in top-line sales momentum from the double-digit growth since mid-March, accompanied by increasing gross margins. We view this as the result of G4M’s relaunch of its growth strategy in June 2024, supported by a more favourable competitive backdrop. With board expectations for FY26 lifted by the positive start to the year, we have accordingly increased our FY26E forecasts.

FY26 off to a flyer – strong sales momentum and gross margins

More subdued consumer and industry demand prompted the acceleration in FY25 of SDG’s key strategic initiatives: digitalisation across the business, US First, and Future Factory. The demand outlook remains mixed, but actions already taken should mitigate this backdrop, bear early fruit in FY26E, and more importantly position SDG for longer-term growth. The push to digitalisation will see the launch of standalone brand websites for Sanderson and Harlequin, following the successful launch of Morris & Co, together with a re-platformed Trade Hub with enhanced functionality.

Getting fit for the future

IG Design has delivered a decline in its H1 results, reflecting the difficult market and consumer trends previously announced. The combined impact of market softness and credit risk management on revenue evolution has been exacerbated by operating cost headwinds, most notably in all freight costs. These could not, however, be fully mitigated by the benefits from the ongoing strategic initiatives at DG Americas (DGA) and further overhead cost savings. A combination of factors should deliver a profitable H2, with the group on track to deliver on its aspiration to return adjusted operating margin to the proforma pre-pandemic level of at least 4.5% in FY25E.

Fragile backdrop, but profitable H2 to underpin FY25 results

G4M’s interim results were in line with last month’s detailed trading update. More encouragingly and importantly, FY25E’s sequential quarterly improvement in revenue growth continues, with 5% revenue growth achieved in Q3 to date. This has been delivered against the backdrop of a challenging consumer environment, most notably in G4M’s European markets. With November and December typically accounting for around a quarter of annual revenues, this is propitious for the full-year outturn, which G4M says remains in line with consensus market expectations.

Rising revenue growth momentum

IG Design has published a post close H1 trading update for the six months ending 30 September. Full-year guidance for FY25E remains unchanged from that provided in last month’s AGM trading update. Group revenue for H1 FY25E has declined around 11%, a slight improvement on the five-month figure, driven by persisting adverse trends in DG Americas (DGA). Cash generation has remained strong, with the group delivering a positive average cash balance for the period. The group expects the combination of continued business simplification, efficiency measures and cost savings initiatives to deliver a profit in H2 FY25E, compared with a loss in H2 FY24.

Unchanged outlook on H1 trading update

G4M’s H1 trading update to 30 September shows a sequential step-up in quarterly revenue performance, with further growth momentum achieved in October to date. The H1 reported loss (LBT) is expected to deliver an improvement of around £0.7m over H1 FY24, despite total revenues being slightly down and a small decrease in gross margin percentage. This points to good cost management and financial discipline. The UK has performed well, the second-hand platform is showing strong traction with customers, and the group has reduced H1 net debt by a further £3.6m.

Gently growing into the new Growth Strategy

Sanderson Design Group (SDG) has reported its interim results, with a 68% decline in adjusted underlying PBT to £2.2m. The two main drivers of this performance are weaker Brand sales (down 8%) and the phasing of Licensing revenues, as previously reported by the group. SDG has declared an interim dividend of 0.5p, compared with 0.75p last year, reflecting the H1 performance. Trading conditions have been more difficult than expected in the first two months of H2 to end September, suggesting downside risk to previous expectations.

H1 reflects challenging trading and phasing of Licensing revenue

IG Design Group has published an AGM trading update for the five months ending 31 August, with an updated outlook for FY25E. The group expects to continue to make progress with its transformation plans, with cash generation remaining strong, and DG International’s (DGI) performance also remaining strong, led by growth in Continental Europe. The same trends that adversely impacted DG America’s (DGA) FY24 revenue are now expected to persist longer than anticipated and have resulted in a decline of around 14% in the period. While this will hold back financial performance versus earlier expectations, the group still expects to achieve FY25E adjusted profit growth of at least 20% compared with FY24 and to achieve its stated operating margin of 4.5%.

Persisting US trends hold back performance

Sanderson Design Group (SDG) has announced encouragingly stronger trading in July to complete its H1 performance to 31 July. This has been driven by continued strength in Brand product sales in North America, though the UK market remains challenging, which also impacts on repeat orders within Manufacturing. While Licensing revenues were down on H1 last year, they are in line with group expectations, with the FY25E full-year outturn expected to be similar to last year. The group has made progress on other strategic initiatives, delivering annualised cost savings of c.£0.6m.

Stronger July trading to end H1, driven by North America

Sanderson Design Group (SDG) noted in its full-year results announcement in April that trading conditions would likely remain challenging in the current financial year (FY25). Trading conditions in the UK, its largest geographic market, have since deteriorated further in May and June, with UK product sales down 14% in the year to date. Manufacturing activity is in line with last year but below current-year expectations. Consequently, current-year trading performance and profitability are expected to be significantly below earlier expectations.

Weakening UK demand adversely affects the full-year profit outlook

G4M’s FY24 results were in line with the headlines delivered in the April trading update, with margin and profit recovery despite a top-line decline, and an impressive reduction in net debt. Alongside a number of board changes confirmed for 5 July, G4M has unveiled a refreshed and updated strategy to drive profitable sales growth over the medium term from the stabilised base and return to positive PBT achieved in FY24.

Moving onto the front foot to drive profitable sales growth

IG Design’s FY24 results confirmed another year of significant progress in the second year of its three-year turnaround journey, notwithstanding ongoing macroeconomic challenges. The scene is now set for a transition to top-line revenue growth supporting further leverage of profitability and margins. This move is embodied in the relaunch of the group’s purpose, vision and mission statements, to support execution of the growth strategy launched in the year.