Floor coverings retailer Carpetright (CPR) cheapens 4.9% to 233p after warning that full year underlying pre-tax profits are likely to be towards the lower end of the £13.9m to £16.2m consensus forecast range.
The disappointing news follows challenging trading conditions seen over the final quarter and triggers another round of earnings downgrades for the Purfleet-headquartered carpets-to-beds retailer.
GROWTH SLOWDOWN
Click here to read today’s fourth quarter trading statement from Carpetright, which reports group sales up 1.6% for the 12 weeks to 22 April. In the UK, like-for-like sales grew by 1.4%, not only well south of analysts’ forecasts, but also representing a slowdown on the 1.9% same-store increase seen in Q3.
Carpetright’s European business (Netherlands, Belgium and the Republic of Ireland) generated like-for-like growth of 1.4% in local currency, also marking a slowdown on the 5.2% growth delivered in the prior quarter. The good news is Carpetright enjoyed a positive currency impact from weak sterling - total European sales skipped 11% higher on a reported foreign exchange basis.
In addition, economic confidence in key market the Netherlands is recovering, helping to mitigate a trading drag from Belgium and Eire.
TRADING TOUGHENS
CEO Wilf Walsh (pictured below) remains confident in his turnaround strategy, although the UK consumer backdrop appears to be weakening.
As he comments: ‘In common with other retailers in the home improvement sector in the UK we have experienced tougher trading conditions over the last three months. Having said that, we are pleased to report continued like-for-like sales growth, with an increase of 1.4% in our fourth quarter.’
‘Following a further acceleration of the investment programme in the final quarter we have completed 188 store refurbishments - surpassing our target of 150 stores, which represents over 40% of the UK estate. Despite the inevitable disruption factor, the performance of these refurbished stores has been encouraging giving us confidence to continue with the programme.’
THE ANALYSTS’ VIEW
Cantor Fitzgerald Europe’s Mark Photiades sticks with his ‘hold’ rating with a 210p price target. ‘The new management team has done much to revitalise the Carpetright brand through developing a new concept store and beginning the needed rationalisation of the store estate,’ says Photiades, though he cautions ‘the development of start-up rival Tapi, which now has over seventy stores, needs to be monitored closely.’
Photiades elaborates that the growth of Tapi, an ambitious, emerging competitor to Carpetright previously flagged by Shares here, ‘is having an impact on sales, gross margins and competition for sites. Another significant risk on forecasts is the impact of foreign exchange.’
Over at N+1 Singer, analyst Matthew McEachran is staying positive on the Carpetright turnaround. ‘Whilst slightly disappointing the news today does not alter the investment case as the market number one reasserts itself in the UK and delivers growth in Europe,’ he insists. ‘Any weakness presents a buying opportunity.'
