Carpetright lowers full-year forecast amid ‘fragile’ consumer confidence
The group posted bottom line pre-tax profits of £300,000 for the six months to October 28, down from £4.1 million a year earlier.
Retailer Carpetright has revealed that half-year profits crashed by 92.7% and warned full-year earnings will be towards the bottom end of expectations in a “volatile and unpredictable” consumer market.
The group cautioned over a “fragile” consumer outlook and intense competition as it posted bottom-line pre-tax profits of £300,000 for the six months to October 28, down from £4.1 million a year earlier.
On an underlying basis, profits more than halved to £2.1 million from £5.1 million a year ago.
Carpetright said a challenging first half saw profits impacted by a clearance sale to shift discontinued bed lines as it overhauled the entire range, as well as “unsuccessful” discounting in the Netherlands and Belgium.
UK like-for-like sales rose 0.7% in the first half, but UK earnings fell 27% and profit margins dropped heavily in its European arm.
The chain said sales had picked up in the first six weeks of the second half – rising by 1.4% on a like-for-like basis in the UK – but cautioned over the second half as it said consumers were being hit by an income squeeze.
Carpetright chief executive Wilf Walsh said: “When wage inflation fails to keep pace with RPI (inflation) there has, at some stage, to be a tipping point when customers tighten their belts.
“As the Brexit divorce terms remain unclear, the consumer market has remained volatile and unpredictable, but whatever happens we believe we can maintain and indeed grow our share in the core flooring market.”
He added: “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.”
Shares fell as much as 8% after Carpetright’s gloomy outlook.
The company’s cautious comments for the second half mark a big shift in its outlook, with the group saying less than two months ago that it was set for a “significantly stronger” performance in the final six months of its year.
Neil Wilson, senior market analyst at ETX Capital, said: “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.”
It has been a difficult past couple of years for Carpetright, which has been fighting amid more difficult trading and the threat from new rival Tapi.
Tapi was launched in 2015 by Martin Harris – a former Carpetright executive and the son of Carpetright’s founder Philip Harris.
Carpetright launched a raft of promotions in response, which hurt profits in its last financial year, with costs for terminating leases on loss-making stores also taking its toll.
Profits collapsed by 93% to £900,000 in the year to April 29 as a result.
But it has been refurbishing its estate to help boost trade, with plans to complete the entire store base by the end of next year.
This has helped sales in its core flooring categories rebound by 2.7% in the six weeks to December 9, while it said like-for-like sales in its European arm lifted 9.2% in the same period.