Carpet and floor coverings purveyor Carpetright (CPR) unfurls its second profit warning in two months. Trading in the important post-Christmas sales has been ‘significantly behind expectations’ which sends its shares crashing 40% lower to 98p.

Core UK flooring like-for-like sales have slumped 7.1% since Christmas, a disastrous showing in the important winter trading period for Carpetright.

This means UK like-for-like sales declined 3.6% in the broader 11 weeks to 13 January.

The Purfleet-headquartered carpets-to-beds retailer, whose total sales fell 2.3% in the 11 week period, is now guiding towards profits ‘in the range of £2m to £6m’ for the year ending 28 April 2018.

This is a very significant downgrade, since the company guided annual underlying pre-tax profit expectations to the lower end of the previous £13.8m-to-£16.7m range just before Christmas while posting a worse-than-expected decline in first half profit.

Before today’s damaging update, consensus for the year was underlying profit before tax to be £14.1m, with a range from £13.0m to £15.6m.

BIG TICKET ON THE BACK BURNER

Big ticket items like carpets and beds are usually the first to go on the back burner when consumer incomes come under pressure, so it is unsurprising to see Carpetright and others struggling to build strong sales momentum in the UK.

As CEO Wilf Walsh comments: ‘Despite a positive start to our third quarter, we have seen a significant deterioration in UK trading during the important post-Christmas trading period.

‘While average transaction values were up year on year, the number of customer transactions since Christmas was sharply down, which we believe is indicative of reduced consumer confidence.’

CarpetRight2015_Clapham_AS05814

ALIVE TO THE COMPETITIVE THREAT

Walsh continues: ‘Our response to the threat of new competition continues to be effective, with those stores that have traded against new local competition for more than 12 months performing ahead of the rest of our estate.

‘Sales in our Rest of Europe business have also been volatile but we continue to deliver like-for-like sales growth, primarily reflecting the introduction of lower margin service income.’

WHAT THE EXPERTS SAY

Neil Wilson, senior market analyst at ETX Capital, says Carpetright ‘has been floored by a horrendous post-Christmas sales period that has significantly hit profitability.

‘Again it’s the same old story as with other brands that have failed to adapt to changing consumer trends - lower footfall has left transaction numbers down significantly from last year.

‘We must also consider weaker consumer sentiment for big ticket items as a factor, as well as tougher competition from a more diverse marketplace.’

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Issue Date: 19 Jan 2018