Carpetright H1 profit drops as competition and discounting bite

Shares in Carpetright slid on Tuesday after the floor coverings specialist said it expects underlying pre-tax profits for the full year to be towards the bottom end of the current range of market expectations, as it reported a drop in first-half profit and highlighted "fragile" consumer confidence.

In the 26 weeks to 28 October, statutory pre-tax profit slumped to £300,000 from £4.1m the year before as higher store payrolls costs, discounting and increased competition took their toll.

Revenue was up 2.6% in the period to £228.1m, while UK like-for-like sales in the first half rose by 0.7%, with 1.9% growth in the core flooring categories offset in part by reduced bed sales, which were impacted by clearance of discontinued lines as the company changed the entire range. Meanwhile, the group made an underlying operating profit of £3.6m, down from £4.9m in the first half of last year.

In the rest of Europe, LFL sales grew 6.5%, but the company made an underlying operating loss of £400,000 versus a profit of £1.1m the year before.

Nevertheless, Carpetright said it made an "encouraging" start to the second half, with LFL sales in the UK up 1.4% in the six weeks to 9 December, with growth of 2.7% in the core flooring categories. In the rest of Europe, LFL sales were up 9.2% in local currency over the same period.

Chief executive Wilf Walsh said: "The first half has undoubtedly been challenging. Consumer confidence remains fragile and we continue to manage the impact of intensified competition. We have made pleasing progress in our core flooring business in the UK - like-for-like sales are up, more than half the UK store estate has now been refurbished and our customer service metrics have been improved significantly. However, as previously flagged, our first half profits reflect the impact of the clearance of discontinued lines in our beds business and also unsuccessful deeper discounting promotions in the Netherlands and Belgium, which are now being addressed.

"Looking ahead we will be focused on maintaining sales momentum in UK flooring, capitalising on the much-stronger new range to turn around our beds performance and improving overall trading in the Netherlands and Belgium. While trading over the first six weeks of the new period has been encouraging, with an acceleration in like-for-like sales growth in both the UK and Rest of Europe, in light of the consumer outlook we are taking a more cautious view of the second half and now expect underlying profit before tax for the full year will be towards the bottom end of the current range of market expectations."

Neil Wilson, senior market analyst at ETX Capital, said it's been "a rough half" for Carpetright and "it looks just as rocky ahead".

"Unless there is a significant uplift in H2 then achieving even the lower end of the range will be a challenge. As previously noted management is placing a big bet on sales recovering in the second half but it’s tough given the uncertain consumer outlook and pressure on incomes. Big ticket items like carpets and beds are usually the first to go on the back burner so it’s little surprise to see Carpetright and others struggling to build strong sales momentum in the UK."

At 0920 GMT, the shares were down 6.5% to 173p.