Struggling home improvement retailer Carpetright (CPR) has warned on profits for the second time in four months, bemoaning worsening economic conditions in Holland for its latest hiccup.


Shares in the specialist carpet and floor coverings seller thin out by 3.25p to 564.75p as investors show their displeasure at another round of downgrades.

Web chart - Carpetright - Jan 2014

In the third quarter trading update, the £382.9 million cap warns full-year underlying taxable profits will be 'below the lower end of current market expectations' due to a further deterioration in trading in The Netherlands.


Before the news, the range for the year ending 26 April was £9 million-to-£11 million with consensus set at £9.6 million, although chunky downgrades are now on their way.


Over the 13 weeks ended 25 January, a further weakening of the Dutch market dragged like-for-like sales down by a worse-than-expected 7.7% in Carpetright's 'Rest of Europe' region, also including the challenging-yet-stable markets of Belgium and the Republic of Ireland. Executive chairman Lord Harris of Peckham says the Dutch unit, which broker N+1 Singer reckons was 'down double digit in the quarter', will be loss making this fiscal year, though it should at least remain cash generative.


Back on home turf, the picture is somewhat brighter. Like-for-like sales edged up 1.9% in a difficult UK market, an improvement on Q2 with self-help measures including store refurbishments, development of laminate and bed ranges as well as a push on service driving the improvements.


Vital signs in the UK business aren't enough to appease investors in Carpetright, which rocked the market with a major profits alert on 4 October which it blamed on a softer UK market as well as Dutch woes. This warning was accompanied by news of the surprise departure of CEO Darren Shapland in a development which saw Lord Harris return to running the business he founded in an executive capacity.


N+1 Singer, with a 'buy' rating and 670p price target, concedes 'October's profit warning combined with the news of Darren Shapland's surprise departure was initially hard to digest. However, with responsibilities reallocated, and Lord Harris back as Exec Chairman, execution of key strategic initiatives continue as planned.


The broker adds: 'The "buy" case is dependent upon an operationally-geared recovery in the UK as a raft of positive self-help initiatives coincide with recovery in CPR's addressable markets. As yet management do not feel they have seen any meaningful tailwind from the increased activity in the UK housing market – a benefit which should feed through in time.'

Issue Date: 28 Jan 2014