Struggling floor coverings-to-beds retailer Carpetright (CPR) says it is in talks with its lenders as it unfurls its fifth profit warning in less than a year.

Alarmingly, Carpetright now expects to book a small loss for the year ending 28 April amid a downturn in consumer confidence and rising competition. The news triggers a 32% share price slump to a threadbare 53p.


In a short update, Purfleet-headquartered Carpetright says trading conditions in the weeks since its post-Christmas profit warning (19 Jan) ‘have remained difficult, characterised by continued weak consumer confidence.

It says that While the trend in the group’s UK like-for-like sales has improved through the intervening period, it remains negative.

Sellers of big-ticket items are coming under pressure, with items like carpets and beds usually the first to go on the back burner when consumer incomes are squeezed.

The £52.9m cap’s trading in the rest of Europe (Belgium, Holland and the Republic of Ireland) has improved, led by a recovery in like-for-like sales in the Netherlands.

Yet CEO Wilf Walsh warns that with the important Easter period to come, ‘UK like-for-like sales remain below management expectations and the group now expects to report a small underlying pre-tax loss for the year ending 28 April 2018.’

This represents a material earnings downgrade.

Carpetright had already slashed profit expectations down to a £2m to £6m range in January following poor winter sales and with Tapi, the flooring chain run by Martin Harris, the son of Carpetright founder Lord Harris of Peckham, snapping at its heels.


Worryingly for shareholders, Carpetright’s cash flows and balance sheet are feeling the strain and a breach of covenants looks feasible, if trading fails to improve.

The company insists it is ‘proactively engaged in constructive discussions with its bank lenders in order to ensure it continues to comply with the terms of its prevailing bank facilities’, with the ailing flooring chain adding that ‘the bank lenders have indicated that they currently remain fully supportive.’

Moreover, ‘in addition to the discussion with its lenders, the group is examining a range of options to accelerate the turnaround of the business and strengthen its balance sheet.’

Carpetright - FEB 2018


Writing for Langton Capital, retail analyst Nick Bubb says: ‘It is only six weeks or so since the last Carpetright profit warning, but, almost unbelievably it has issued another profit warning today and flagged, ominously, that it is in discussions with its banks about to prop up the balance sheet.’

Bubb adds: ‘Whether Carpetright needs to raise more equity remains unclear, as does the issue of how far its problems are to do with intense competition from its rival Tapi, but shareholders will fear the worst today.’

It’s been quite a climb-down from just a few months ago. In December it issued a profits warning, guiding underlying profit before tax for the year to be at the lower end of the previous range of £13.8m to £16.7m.

As we noted at the time, profits warnings have a nasty habit of not coming alone and that guidance appeared to be wishful thinking.

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Issue Date: 01 Mar 2018