Carpets, rugs and beds retailer Carpetright (CPR) is in demand after weaving a better-than-expected rise in half-time profits. This confirms further progress with the home improvement retailer's self-help drive, one benefiting from a more favourable backdrop for purveyors of big-ticket items, though cautious investors should heed a rising competitive threat.
Purfleet-headquartered Carpetright is marked up 7.7% to 505p as CEO Wilf Walsh reports a pleasing 34.3% jump in underlying profit before tax to £9 million for the half to October. The profits haul was aided by a lower rent bill, as the retailer's quest to cut costs and improve store estate quality continues; a net 21 stores were shuttered in the half to give a more profitable total store base of 576.
Group sales edged ahead 1.4% to £231.2 million. UK like-for-like sales were up 3.7%, while same-store sales grew 5.5% at constant currency in the Rest of Europe region. Walsh, appointed to the hot seat in July 2014, has done a good job in rejuvenating the UK floor coverings market leader and highlights further progress with 'a wide-ranging programme of initiatives to extend the appeal of the Carpetright brand'.
Carpetright is reaching out beyond its traditional value-oriented shopper, taking the brand upmarket to entice a more affluent, aspirational customer. Spearheading this drive is a new retail concept and brand identity (new logo pictured) which is showing encouraging signs. Four trial stores in and around the M25 have met with a positive customer reaction, generating an increase in average order values and growth in flooring categories outside of core carpet products.
One broker not getting carried away however is Cantor Fitzgerald Europe, where retail scribe Freddie George leaves his full-year pre-tax profit and earnings per share forecasts of £18 million and 20.1p respectively, as well as his 'hold' recommendation and 470p price target, all unchanged, highlighting a number of concerns on the horizon.
George writes: 'The strategy being implemented by Wilf Walsh is credible but is not enough, in our view, to move the dial. The company has benefited from offering interest free credit in the last year and a more positive upturn in housing transactions and consumer confidence.'
Furthermore, George believes Carpetright is 'starting to feel some impact from the recent launch of Martin Harris’ new retail concept, Tapi, which already has over twenty stores opened in the last six months.' Martin Harris is the son of Carpetright’s founder Lord Harris of Peckham. He spent more than twenty years with the retailer, to which he is now taking the fight with ambitious plans to launch up to 200 Tapi stores in the UK.
Aimed at the mid-market, the Tapi concept needs to be taken seriously due to the Harris family heritage in carpet retailing and the fact the new launch has support from heavyweight investors, among them DFS Furniture (DFS) founder Lord Kirkham.