Carpetright has issued its third profits warning in less than six months. Pre-tax profits for the flooring retailer could fall as low as £3.5m — half of what most City analysts had expected.
The company is blaming disastrous winter sales figures — like-for-like UK sales rose by just 0.2 per cent during the last eight weeks — and continued problems with its European business for its profits slump. The retailer said it had been hit by “extremely difficult economic conditions” in The Netherlands, where it has 15 per cent of its 620 stores. Overall its sales in continental Europe fell by 5.3 per cent.
The fragility of Britain’s recovery is also reflected in the Carpetright figures. Given its association with the building industry and the amount of spare cash people have for home improvements, the company’s lack of sales go a long way to underline doubts in the UK economy. And having warned twice on profits since October many are also doubting the company’s strategy.
News of a sales rise of less than half-of-one per cent, compared to 1.9 per cent in the previous three months, triggered an immediate five per cent drop in the company’s shares. “In our last trading statement, we reported that like-for-like sales in the UK were volatile, and this remains the case,” explained Lord Harris, Carpetright founder and executive chairman. He returned to a full-time role last October when Darren Shapland departed after just 18 months as chief executive.
“Nevertheless, based on previous experience we had expected to see some recovery as UK housing transaction volumes improved. In the event, this has yet to materialise and the momentum established in the third quarter was not sustained.”
Last year Carpetright began a programme of modernising its premises across Britain and Europe. It also has introduced laminate flooring and beds to its stores in a bid to attract more customers. That, claims Cantor Fitzgerald analyst Freddie George, is not enough. “We continue to believe that the company’s conforming format is ineffective against the independents,” he said. “It is still far too focused on price, in our view, and not aspirational enough for mainstream customers.”
Founded by Lord Harris in 1988, Carpetright is now Britain’s biggest floor covering retailer. Many, like Sanjay Vidyarthi, sense the company’s problems lies within its property portfolio rather than the wider economy.
“Carpetright probably has too much space in the UK relative to the size of the market and some of its stores are far too expensive to maintain,” added the head retail analyst at Liberum.
One response to its woes was the hiring of Nick Worthington, the former boss of bed retailer Dreams, to take charge of its Dutch, Belgium and Irish stores. But Carpetright has other things to worry about. Along with four other flooring and furniture retailers it promised last year to clean up its pricing policy after all five reached a settlement with the Office of Fair Trading on misleading promotions.
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