Warpaint continues rapid expansion

Cosmetics company Warpaint London (W7L) posted record annual results as it made progress with new and existing retail customers across its markets, with investors rewarded with a 27 per cent increase in the full-year dividend. 

Revenue was up 61 per cent in the EU, the company's biggest market, where there was "significant further expansion" with its brands at the Normal, Etos and Wibra chains. Growth of 18 per cent was recorded in the UK, as Superdrug was added to a client roster which includes Tesco (TSCO) and Boots. Products were rolled out to a further 387 CVS (US:CVS) stores in the first quarter of the new financial year in the US, and Walmart (US:WMT) put through a chunky Christmas order. Sales rose 37 per cent in the US in the year, a market where the company is starting from a much smaller base. 

Over 90 per cent of the company's revenue is posted by the in-house W7 and Technic brands. The performance was helped by a more than doubling of online sales to £6.2mn. Prices haven't been raised since January 2022, positioning the company well in this macro climate. 

Gross margin climbed by a robust 350 basis points to 39.9 per cent. 

Backing up growth is a resilient balance sheet. With no debt in the mix, the company hasn't seen any direct financial headwinds from the higher interest rate environment. Investment in stock meant inventory was £28mn at the year end, up by over £9mn from 2022, helping to avoid supply headaches. 

Impressive trading has continued into the new financial year, with revenue up 28 per cent in the first quarter and margins ahead of the full year postings. But the shares are rated at 22 times forward consensus earnings, a level which indicates that the market is up to speed with events. Hold. 

Last IC view: Hold, 211p, 26 Apr 2023