How on Earth Are They Going to Resolve This?

Travis Perkins is the UK's largest distributor of building materials to the building, construction, and home improvement markets. The company was founded in 1797 and is headquartered in Northampton. It operates through two main segments:

• Merchanting (approximately 80% of group revenue): The core business, operating under the Travis Perkins, BSS, Keyline Civils Specialist, and CCF brands. Travis Perkins is a general builders' merchant offering heavy-side products complemented by light-side convenience, tool hire, managed services, and kitchen design (Benchmarx). BSS provides specialist plumbing and heating distribution. Keyline supports housebuilders and infrastructure contractors. CCF distributes insulation and interior building products.
• Toolstation (approximately 20% of group revenue): A multi-channel supplier of tools and building supplies to trade and DIY customers. Toolstation UK has been growing modestly and is the bright spot in the group. Toolstation Benelux (Belgium and Netherlands) is under strategic review and an exit looks increasingly likely.

There is not a huge amount in this update, but what there is paints a picture of ongoing challenges. Construction activity remains subdued, and the figures are not great.

Q1 FY 2026 trading summary

The Merchanting segment — which is by far the largest division — saw like-for-like sales fall 2.3%, with volumes down 3.3% partly offset by price/mix of +1.0% from passing through manufacturer price increases. Total Merchanting revenue fell 4.2%, with the additional drag from the Staircraft disposal in FY 2025.

Toolstation UK had a solid quarter with like-for-like growth of 2.6%, benefiting from estate maturity and further margin improvement. That's the bright spot.

Toolstation Benelux had a dismal first quarter — like-for-like revenue down 7.1%, driven by an 8.8% volume decline. I'm a bit shocked they didn't feel the need to explain why this was so poor. A strategic review of Toolstation Benelux is ongoing, and an exit looks increasingly likely.

Revenue by division (£m)

The trend is clear: Merchanting has been in consistent decline since FY 2022, losing roughly £670 million of annual revenue over three years. Toolstation UK has been growing modestly but is far too small to offset the Merchanting drag.

Things aren't looking good. The gross margin has been slowly reducing every year. It currently sits at 26.1%, which is the lowest I have seen for at least the last six years. I doubt it will improve much given the continued lack of volume — and the company is actively rationalising areas, which also hits turnover.

Margin and profit trajectory

The adjusted operating profit trajectory — £295 million → £180 million → £152 million → £133 million — tells the story. And the statutory figures are even worse: the company has reported net losses in both FY 2024 and FY 2025, with a statutory operating loss of £97 million in FY 2025 after £222 million of adjusting items related to impairments of Toolstation Benelux, CCF, and specific Merchanting branches. That's a lot of adjusting items.

Six-year summary

In three years' time, I might expect them to achieve revenue of approximately £4.2 billion and profit before tax of around £126 million, which would equate to a post-tax profit of approximately £94.5 million and an earnings per share of around 44p. I'd give it a growth rate of 3% from that point, reflecting the structural challenges in the business. But this needs to be discounted by 30% because of the time it will take to get there.

My three-year scenario

VALUATION SNAPSHOT

How on earth are they going to resolve this? Sales figures aren't coming through. The gross margin is falling. The Merchanting division — which is the vast majority of the business — is in structural decline. Toolstation UK is a bright spot but too small to move the needle. Toolstation Benelux is being reviewed for exit.

The new CEO, Gavin Slark (joined 1 January 2026), has sector experience, but the headwinds are formidable: construction activity is subdued, cost inflation from the Middle East conflict is pushing up energy and material costs, and the company is trying to simultaneously restructure and maintain market share.

The balance sheet is at least in reasonable shape — net cash before leases of £1 million at FY 2025, with a £136 million working capital inflow helping to offset the operational challenges. But a strong balance sheet doesn't fix a declining top line and eroding margins.

• Construction market remains subdued: UK construction activity shows no sign of meaningful recovery. Housebuilding starts remain depressed, and infrastructure spending has not yet translated into merchant volumes.
• Merchanting in structural decline: £670 million of revenue lost over three years. If the sector does not recover, further branch closures and redundancies are inevitable.
• Gross margin compression: Six consecutive years of declining gross margins (28.5% → 26.1%). If this continues, profitability will erode further even if volumes stabilise.
• Adjusted vs statutory gap: £222 million of adjusting items in FY 2025 alone. The statutory operating loss of £97 million is a more honest reflection of where the business is.
• Toolstation Benelux: Under strategic review, likely to be exited. This will crystallise losses and remove what management once hoped would be a growth engine.
• Cost inflation: The Middle East conflict is pushing up energy and material costs, squeezing already thin margins.

• Construction activity recovery: A sustained recovery in UK housebuilding starts and renovation activity would directly benefit Merchanting volumes. Without this, the business continues to shrink.
• Gross margin stabilisation above 27%: If the company can arrest the margin decline and return to above 27%, it would signal that pricing power is returning.
• Share price below 350p: At lower prices, the value opportunity would narrow and the dividend yield would become more supportive. The current price offers no margin of safety.
• Successful Toolstation Benelux exit: A clean disposal at a reasonable price would remove a drag and allow management to focus entirely on the UK operations.
• New CEO strategy clarity: Gavin Slark has been in the role for four months. A clear strategic plan for Merchanting — beyond cost-cutting — would be encouraging.