A falling housing market and dented consumer confidence has put the squeeze on sales at Travis Perkins, the giant builders merchant and owner of the Wickes DIY chain.

Like-for-like sales at Travis Perkins which grew at 9 per cent during 2007 has slowed to 5.7 per cent growth since the new year, while same-store sales growth at Wickes has dropped from a market-beating 5.5 per cent last year, to a 0.9 per cent improvement over the first eight weeks of 2008.

Delivering an 18.7 per cent rise in underlying pre-tax profits to £261.4 million for 2007, Geoff Cooper, chief executive of Travis Perkins, said 2008 would be “challenging” but that he was confident his operations would continue to outperform the market and gain market share.

Since the new year, sales at Wickes had been weaker over the weekend compared with mid-week, reflecting a drop in household spend for DIY products. However, Mr Cooper said that current conditions “bear a greater resemblance” to the economy of 2005 rather than the “severe period of slow-down in 1991 to 1993”.

He added: “Both in early 2005 and early 2008, the outlook for the housing market looked poor, whilst other sources of building material consumption - notably the repair and maintenance sector - looked more positive. Our customers currently report a shortening of orders on hand, particularly for new housing construction work. The outlook for repair, maintenance and improvement work, where we enjoy proportionately higher margins, remains relatively firmer.”

Sales of big-ticket items from Wickes showrooms, which can range from a new kitchen to bathroom, were down 4.6 per cent for 2007 and that pace of decline has increased to 5.6 per cent for the first two months of this year. Spending on these more expensive items - a small part of Wickes’s overall revenue - tend to reflect activity in the wider housing market and general consumer confidence. The slowdown is, however, not nearly as severe as the early part of 2005 when showroom sales fell 15 per cent.

Travis Perkins initially expected the slowdown to come in the second half of last year. That pessimism helped keep a focus on costs, allowing retail margins to improve last year to 6.7 per cent from 6.4 per cent.

Kingfisher, owner of the B&Q chain, Homebase and Focus, the main rivals to Wickes, have all struggled with sales growth, leaving their margins at about half the size of Wickes.

Margins in both the Wickes retailing division and the merchanting division - which includes both the Travis Perkins, Keyline, City Plumbing and CCF networks - will however come under pressure this year, Mr Cooper warned, as the group struggles in the early part of this year to pass on to consumers and builders the price inflation for goods from suppliers.

He still expected positive like-for-like sales growth from both retailing and the merchanting divisions this year.

Price inflation last year accounted for roughly two thirds of the improvement in like-for-like sales whilst the rest came from better volume growth.

Mr Cooper discounted any likelihood of his competitors, such as Wolseley, Jewson or Grafton, being able to engage in a price war, similar to that which gripped the markets in 2005 as rivals fought for a dwindling market.

He said: “Others’ margins are low and do not seem to have recovered from 2005, so their appetite for a price war would be pretty low. Competitors’ margins in retail are down to around 3 per cent. We have double the operating margin. We do not see a price war as likely. They will want to build them [margins] back.”

Travis Perkins will continue its expansion programme and has already opened 41 stores across the group since the new year, taking the total branch network to 1,166 outlets. "The company is ready to buy up smaller operators who may struggle with cashflow over the year ahead," Mr Cooper said. “We are already seeing the price of goodwill coming off for many operators.”

Travis Perkins increased its revenue by 11.9 per cent to £3.19 billion last year with underlying sales growth boosted by new store openings and acquisitions. The full-year dividend increased 20.1 per cent to 44.9p per share.

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