Shares in Carpetright PLC (LON:CPR) dipped on Tuesday after the UK’s largest floors and carpets retailer warned first-half profits would be hit by “volatile” trading conditions.
The company, founded by Lord Harris of Peckham back in the ‘80s, said it expected group first half profit to be lower than that reported last year.
Full-year on track though
An “improvement in sales” in recent weeks means Carpetright still expects to hit full-year expectations though. Currently analysts are looking for a pre-tax profit of between £13.8mln and £16.7mln.
Carpetright – which has 419 stores across the UK and a further 136 overseas – saw UK like-for-like sales edge 0.8% higher in the six months ended 21 October.
Most of that growth came in the floorings business, with bed sales falling after being impacted an “acceleration of re-ranging activity” to improve the offering.
So far this year, Carpetright has closed nine stores and only opened two – a sign that times are tough in the industry as UK consumers feel the squeeze of stagnant wage growth and rising inflation.
On the continent things were a little better, with like-for-like sales jumping 6.3%.
That meant group sales overall rose 1.8% in the half.
‘Significantly stronger second half’
“Whilst we expect the group first half profit to be below that of the prior year, we are pleased with the improvement in sales in the Rest of Europe and beds in the UK over the past few weeks,” said chief executive Wilf Walsh.
“When these are combined with continued progress in our core flooring category we expect a significantly stronger second half with full year profit within the current range of market expectations.”
Interim results are due out on 12 December.
UK discretionary spend ‘on the brink’
“Slowing growth and a slew of profits warnings at retailers and DIY merchants has been pounced upon as a sign that UK discretionary spending is on the brink,” said ETX Capital analyst Neil Wilson.
“In fact, according to EY, the Home Improvement Retailers sub-sector accounts for half of all retail profits warnings in the last six months, which it says is an ‘early warning of falling confidence and pressure on discretionary spend’.
“And so to Carpetright, which seems to have borne the brunt of some of the pullback in discretionary spend.
“Management seems to be putting a lot of faith on ‘a significantly stronger second half’ to deliver [full year results in line with expectations].
“It will need to put its foot to the floor to achieve this given the weaker market environment. Investors aren’t convinced with the shares down over 5% in early trading.
“After enjoying a bounce in the spring the stock has scrubbed these gains to trade just a sliver above last December’s multi-year lows.”
Shares were down 5.6% to 170p on Tuesday Morning.
--Updates for analyst comment--