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Carpetright issues second profit warning of the year

Published: 6 March 2018 - Kiran Grewal

British floor coverings retailer, Carpetright issued its second profit warning of the year, and warned investors on March 1 that trading conditions had remained difficult since its last update on 19 January, where it reported revised full year profit guidance in the range of £2.0million to £6.0million. Carpetright said "ongoing weak consumer confidence is forcing the group to examine a variety of other options to strengthen its balance sheet".

While the trend in Carpetright's UK like-for-like sales has improved since the January update, it remains negative, with trading across the rest of Europe also improved, led by a recovery in like-for-like sales in the Netherlands.

Although the important Easter trading period is still to come, Carpetright said that UK like-for-like sales remain below management expectations, with the group now expecting to report a "small underlying pre-tax loss" for the year ending 28 April 2018. The company had already revised its full-year profit guidance last month to between £2m and £6m, compared to market expectations of around £14m.

As a result of the projected loss, Carpetright said it was "proactively engaged in constructive discussions" with its bank lenders in an effort to ensure the firm continued to comply with the terms of its prevailing bank facilities.

"The bank lenders have indicated that they currently remain fully supportive," it said.

In addition to the discussion with its lenders, Carpetright said it was examining "a range of options to accelerate the turnaround of the business and strengthen its balance sheet".

While this process remained at an early stage, Carpetright said it would continue to update the market on these initiatives as required.

Neil Wilson, senior market analyst at ETX Capital, said: "It's been quite a climb-down from just a few months ago. In December it issued a profits warning, guiding underlying profit before tax for the year to be at the lower end of the previous range of £13.8m to £16.7m. As we noted at the time, profits warnings have a nasty habit of not coming alone and that guidance appeared to be wishful thinking.

"In January management slashed this to a range of £2m-£6m. Horrendous post-Christmas sales were to blame then but the trend is not improving. Now a small loss is expected as trading remains very difficult. That loss may not remain small if Easter doesn't go well."

Mr Wilson pointed out that the company reported net debt of £22.8m in its interim results in December against a market cap that now stands at a little over £50m before today's update. "The market cap will no doubt be significantly lower after the market digests today's warning and the concern is that there comes a point when debt can start to look a bit burdensome," he said.

Now in it's fourth year of transformation of the business and its store portfolio, Carpetright is making a number of investments in order to maintain the “strategic direction” of the business. In its latest financial results for the six months to 28 October, the company said net debt had increased to £22.8m, which it said reflected the continued investment in its store refurbishment programme.

The company currently has 416 stores in the UK.

 

 

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