Specialist flooring retailer Carpetright (CPR) surprised investors with the return of UK like-for-like sales growth in the second half of the year to 29 April 2017. That like-for-like growth has improved marginally since the year end to 2% (for the seven weeks to 17 June) comes as a relief for fed up shareholders.

That news sparked an 11% share price rally to 200p in trading on Tuesday. But that bounce must be cast against a dismal run since mid-April, during which the stock slumped from 247p.

What the results tell us

Digging deeper into the figures, the second half UK sales recovery failed to completely offset an awful first six months, when like-for-likes declined 2.8%. That means that across the full year there was a modest 0.5% fall in like-for-likes.

Carpetright stores in Europe had been holding up well through the full year, up 2.5% over the 12 months. But that trend is now weakening. Like-for-likes on the Continent fell 1.2% in the seven week's to 17 June, although the company claims that this is largely because of disruption caused by store refurbishments.

Bruised and battered

In April, Carpetright warned that full year underlying pre-tax profit would likely fall towards the lower end of the £13.9m to £16.2m consensus forecast range. What the company actually delivered was £14.4m, a 21% decline on the previous year.

Carpetright grapg

Matthew McEachran, analyst at N+1 Singer, believes the second half performance may represent an inflection point, a line in the sand where management's turnaround plans start paying off. He particularly likes the ‘performance in Europe' and the potential from accelerating refit activity.

McEachran is forecasting another flat year for sales ahead but better profits and earnings. He has an adjusted pre-tax profit of £17.5m pencilled in for the 12 months to 30 April 2018, implying 19.5p earnings per share.

Shares look cheap, but there are reasons

That would put the stock on a price to earnings ratio of 10.3, although there's still likely to be an absence of income yield backing.

Cantor Fitzgerald analyst Mark Photiades is more cautious despite conceding the new management has taken action to revitalise the Carpetright brand. Among his chief concerns is the emergence of start-up rival Tapi, an emerging extra threat to Carpetright in a highly competitive environment already.

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Issue Date: 27 Jun 2017