Shares in embattled Carpetright (CPR) fell 3p to 680p in early trading (29 Jan), despite a better-than-expected third quarter update from the European carpet and floor coverings seller.


Over the 13 weeks to 26 Jan, the £463 million cap retailer's UK like-for-like sales grew 3.2%, with total sales up 1.6% in the Purfleet-headquartered company's domestic market. Boss Darren Shapland, who took over as chief executive officer from Lord Harris of Peckham last May, attributed the upturn to momentum behind self-help measures including the development of Carpetright's bed business, the introduction of its laminate range to more stores as well as ongoing store refurbishments.


The share price reaction implies that the market has chosen to focus on disappointments in the Rest of Europe (Netherlands, Belgium and the Republic of Ireland), where same-store sales fell 11.5% and total sales were down 11.2%. Solid performances in Belgium and the Irish Republic were more than offset by continuing weak trading conditions in the Netherlands, where the consumer is clearly battening down the hatches.


Highly operationally-geared Carpetright has been hard hit by unpredictable trading conditions in the UK and European floor coverings market since the downturn. A moribund housing market has hit sales and profits, in tandem with the fact that cash-strapped consumers are eschewing discretionary spend on big ticket items.


When Carpetright posts full-year figures in June, stockbroker Espirito Santo forecasts pre-tax profits of £8.4 million. Its profit estimate is pitched at the lower end of the £8.2 million-to-£10 million consensus range.


The shares are highly-rated on a 73.1 times prospective earnings. 'While we maintain the view that Carpetright is a well-run company with dominant market share and is geared into any consumer/housing market recovery,' writes Espirito Santo analyst Sanjay Vidyarthi, 'the valuation remains prohibitive.'

Issue Date: 29 Jan 2013