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Shares of Carpetright took an 8% dip today upon publication of the company’s Interim Management Statement for the 3rd Quarter, which ended on January 21, 2012.
Report Details
The folowing information is taken directly from the Interim Management Statement
- Group sales were down 3.8% for the Quarter.
- UK sales were down 4.8% for the Quarter.
- Rest of Europe sales were down 0.1%. Adjusting for fluctuating currency exchange rates, Rest of Europe sales are up 1.1%
- Year end pre-tax profits are expected to be below even low-end market expectations
- Year end net debt is expected to be about £43m, a reduction of £22m from fiscal 2011.
Chairman Comments
Chairman and CEO, Lord Harris of Peckham commented that “Tough trading conditions in the UK persisted in the third quarter of our financial year with fragile consumer confidence producing a difficult floor coverings market . . . Excluding sales from our insurance replacement business, which has been disappointing, our core retail business would have reported like-for-like growth of 1.0%”
He went on to say: “Against this tough backdrop we have continued to focus on a range of self-help initiatives and have made progress in each of these areas. The response to the re-launch of our bed proposition in January was encouraging and we have completed the refurbishment of 27 stores, which are delivering good growth. The gross profit margin decline seen the in first half was 430 basis points. This is expected to moderate to around 300 basis points in the second half, slightly down on our previous expectation, reflecting the continued need to drive value for the consumer to maintain sales momentum. We have continued to take a determined approach to reducing the cost base and expect this to be down by approximately £5m year on year, in line with our previous expectations.”
Outlook
Although not predicting a bright future, Lord Harris did raise expectations of improved performance. ‘Looking forward, I see no respite from the challenging environment over the next 12 months but remain confident the Group will emerge in a strong position to deliver future growth once consumer demand improves.”
Analyst Comments
John Stevenson of Peel Hunt said, “The outlook for Q4 remains equally tough, although with more stable pricing and increasing momentum from internal initiatives, Carpetright looks to deliver positive LFL sales momentum,” as his firm maintained its “Hold” rating for CPR and adjusted its full-year pre-tax profit forecast from £11.9m to £6m, nearly a 50% reduction.
Meanwhile, Merchant Securities labelled the stock as a “Sell” this morning, saying it was not surprised by the profit warning. Analysts Amisha Chohan viewed the road ahead as an uphill climb. “The fragility surrounding housing transactions, weak sales from insurance replacement, increased competition from retailers such as ScS introducing a carpet division could be a threat and weak consumer sentiment do not bode well for the company.”
Company Spotlight
Carpetright is a leading floor covering retailer with outlets throughout Europe.
