What's going on?
Britain’s largest home improvement retailer, Travis Perkins, saw its stock drop 5% on Wednesday after warning investors that it would make less money than expected this year. This might be a sign that Brexit is starting to take a toll on British companies.
What does this mean?
Travis Perkins didn’t do that badly overall: its total sales actually grew moderately versus last year. The disappointment came primarily as a result of weakness in one particular division: heating and plumbing. There were some specific problems, like a change in government subsidies for new boilers and, in the company’s words, “changing customer buying behaviors” (which could be a euphemism for Travis Perkins stocking the wrong products!).
On a more concerning note, Travis Perkins said it would close stores and eliminate jobs, claiming it was “too early to predict customer demand next year.” Some attributed this to Brexit-induced uncertainty.
Why should I care?
The bigger picture: Brexit probably isn’t to blame for British companies’ struggles – yet.
If Travis Perkins’ weaker-than-expected revenue was a result of the Brexit vote, the impact would have been seen across all of its business lines, not just heating and plumbing. Indeed, data on the overall construction sector in the UK has been reasonably strong. Travis Perkins’ decision to close stores, however, could be a harbinger of things to come.
For the market: Companies are getting nervous about the consumer.
As Marmitegate helped make clear, the cost of consumer products in Britain is about to go up (and wages aren’t likely to follow as quickly). This means that, in the near future, fewer goods will likely be bought by British consumers – and that’s bad news for British retailers. Travis Perkins shares are down almost 30% since their pre-Brexit vote peak. So, while Brexit probably didn’t cause Travis Perkins’ recent weakness, investors are clearly fearful that it will hurt its future performance.