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Bad press and warm weather dent sales at start of ‘transitional’ year for Carpetright

Last updated: 15:00 26 Jun 2018 BST, First published: 08:39 26 Jun 2018 BST

carpetright shop
Carpetright hopes to have closed 81 of its worst-performing stores by the end of September

Things don’t seem to be getting any better for Carpetright PLC (LON:CPR).

The flooring retailer has endured a difficult 18 months or so, during which it has issued a string of profit warnings as a squeeze on household incomes, a stagnant property market and changes in the way we shop have knocked sales.

The company swung to an underlying loss before tax of £8.7mln (2017: profit of £14.4mln) in the year ended April 28 as group revenue fell by 3% to £443.8mln, both of which were as the market had expected.

READ: Carpetright becomes latest company to ask creditors for help

Trading in the second half was particularly poor, with like-for-like sales in the retailer’s core UK market slumping 7.8% in the final six months of the year.

Including the impact of the restructuring, Carpetright reported a statutory loss before tax of £70.5mln (2017: profit of £0.9mln).

All of this had been fairly well-flagged in the numerous statements over the year.

Turnaround plan

Earlier this month, Carpetright began to implement its turnaround plan after raising £60mln from investors.

The plan is to close 92 of its worst-performing stores, slash the rent on the remaining 113 sites and cut 300 jobs – actions which chief executive Wilf Walsh said are essential if the company is to “restore our profitability and deliver a successful turnaround”.

“This will be a transitional year for the group as we work through our recovery plan,” Walsh said today.

“After a difficult trading year impacted by reduced consumer spend, increased competition and the legacy of an unsustainable, over rented store portfolio - the CVA and recapitalisation offers us the chance to rebuild Carpetright which remains the clear market leader in floor coverings with outstanding consumer brand awareness.”

Struggles persist 

Investors hoping to see an immediate impact from the restructuring and the fresh injection of capital will have been left disappointed, though.

The first eight weeks of the new financial year were “heavily impacted” by the disruption caused by the restructuring, with stock shortages and the warm weather hitting sales.

Even after the initial teething pains, less “negative publicity” and suppliers replenishing stocks, UK like-for-like sales are still down.

Suppliers have been tightening their credit terms, while margins are expected to weaken this year as the costs of closing stores are absorbed.

Silver lining?

There is some better news possibly on the horizon for Carpetright.

It plans to have closed 81 of its least profitable sites by the end of September which should serve to boost like-for-like sales, while it expects to see a benefit from investment into its remaining stores.

On a more macro level, inflation and wages growth are steadily reversing, while recent figures from Barclaycard and the British Retail Consortium have suggested shoppers are opening their wallets again.

Not long to get it sorted

“Carpetright is a work in progress and management should be given some time to rebuild the business. The problem is that it doesn't have a huge amount of time to turn things around,” wrote Markets.com analyst Neil Wilson.

“Investors should prepare for LFL sales to struggle for another year and for restructuring costs to eat into earnings. The real estate problem is being fixed – getting consumers back will require some extra work.

“Management probably has about 18 months to get things sorted. Meditor's second loan repayment and interest is due July 31st 2020.”

Shares were down 5.3% to 28.4p in late afernoon trading.

--Updates for share price--

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