Carpetright narrows losses, turnaround on track

Floor coverings retailer Carpetright reported a narrowing of its full-year losses on Tuesday as it said its turnaround is on track.

For the year to 27 April, the company made a statutory pre-tax loss of £24.8m versus a £69.8m loss the year before. Revenue fell 13.4% to £386.4m, with revenue in the UK down 17% and like-for-like UK revenue 9.1% lower.

Carpetright said the first half of the year was "challenging", with LFL revenue down 12.7% as it implemented the Company Voluntary Arrangements and associated restructuring of its store portfolio. However, the second half performance improved "significantly", with LFL sales down a more modest 5.4%. LFL sales in the fourth quarter were down just 2.3%.

Chief executive Wilf Walsh said: "2018/19 was a transitional year for the business as we took tough but necessary action to address our legacy property issues and restructure the UK store estate. This difficult task was carried out against the backdrop of a challenging trading environment but was essential to put the business back on the path to sustainable profitability.

"From a trading standpoint it was, as expected, a year of two halves, with the first six months reflecting the impact of the CVA implementation, followed by a significant improvement in the second half and, in particular, during Q4. We are pleased to report today that this positive trend has continued into the new year with a return to like-for-like sales growth in the first eight weeks of the period, when UK LFL sales grew by 8.5%."

Sales in the rest of Europe in the first eight weeks of the year were up 4.3%, versus 10.6% growth in the same period last year.

At 0845 BST, the shares were up 8.2% at 19.10p.

Neil Wilson, chief market analyst at Markets.com, said: "This genuinely has been a transformative year for the group. Carpetright has closed a thumping 80 stores and reduced rents to zero on 23 further outlets. They’ve thrown the kitchen sink at the problem and it’s working."

Wilson said it was not surprising that the new year has started well. "We noted in December the encouraging signs from Carpetright's interim results that indicated that its restructuring is on track. And the second half has only been better.

"The problem for Carpetright was simply that it had expanded too quickly with too many stores on bad sites with overly-long leases and upwards-only rent reviews. That’s fine in the good times but when the market softens you are left exposed. Action to tackle this singular problem has been swift and is paying off.

"And as we noted in December, Carpetright has moved on from the reputational concerns in relation to negative headlines earlier in 2018. The upbeat start to the new financial year confirms this."

Russ Mould, investment director at AJ Bell, said: "With the business having seemingly found its feet, thanks to right-sizing the store estate, management now have to focus on reviving sales growth.

"Before anyone gets carried away, it is important to remember that some of Carpetright’s problems are out of its hands. It has no control over the state of the property market and the pace of housing transactions. Moving house is a major catalyst for ordering new carpets, flooring or beds and if fewer people are moving one would expect demand for Carpetright’s services to ease back.

"A recent survey by property portal Zoopla found that the gap between asking and selling prices in the UK had widened amid a weaker outlook for the property market.

"Carpetright’s website goes to show it is having to pull out all the tricks to keep sales ticking over. It is jam packed with promotions such as double discounts and interest free credit deals.

"Such marketing may help to keep the tills ringing but it creates a culture of discounting that customers will expect to be permanent. It is very difficult to wean customers off discounts if they’ve become accustomed to hefty deals for a long time. Carpetright would face the risk that customers go elsewhere if they are presented with higher prices, suggesting its margins may not improve any time soon."