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Strategic investments and competitive headwinds dent Carpetright profits

Published: 27 June 2017 - Fiona Garcia
The chain continues the roll out of its new branding, with 47% of its estate now trading under the new banner
The chain continues the roll out of its new branding, with 47% of its estate now trading under the new-look signage

The flooring specialist revealed that its statutory pre-tax profit slumped 93% to £900,000 in the 52 weeks ended April 29 but remains upbeat, as figures were hit by the impact of costs associated with the transformation of the business and its store portfolio.

Now in the third year of its transformation, Carpetright is making a number of investments in order to maintain the “strategic direction” of the business.

Group revenue for the year increased to £457.6 million, up from £456.8 million in 2016 and its hard flooring category achieved double-digit sales growth, due to a “greater strategic focus”. However, Carpetright said that separately-reported items equating to £13.5m were incurred from rationalising its store estate and exiting leases on loss-making stores.

A net loss of £1.9m was made on the disposal of 25 (22 trading and three onerous) properties during the year, which the company says was principally a combination of surrender premiums and asset write-offs.  Its continued rationalisation of the estate will result in the number of stores falling below 400 by next year.

On an underlying basis, pre-tax profit dropped 21.3% to £14.4m during the year, in line with market expectations.

The refurbishment of its store estate and introduction of new branding and store-fit was a major focus for Carpetright over the course of the year and, by the end of April, it had rolled out the new brand identity to 199 stores – almost half of its estate in the UK.

The company had also completed 160 refurbishments during the year, which it stated, was more than its original target and resulted in an acceleration of the programme twice during the period. The value of assets written off during the store refurbishment programme totalled £1.4 million for the year.

However, Carpetright reported a significant improvement in performance in the second half, as the flooring retailer re-established trading momentum after what it described as a “a difficult first six months”. Like-for-like sales in the UK in H2 increased by 1.8%, partially mitigating the decline of 2.8% experienced in the first half, to give a full-year decline of 0.5%, compared with a 2.8% growth last year.

The chain’s refurbished stores delivered a like-for-like sales growth of 6.8% in the final quarter of the year, markedly higher than the un-invested estate, which the company said “gives us confidence to press ahead with the investment programme”. The group is on track to complete the remainder of the UK estate, with some form of additional investment, by December 2018. 

The firm’s underlying operating profit also took a hit, down from £17.8m in 2016, to £10.7 million for this trading period, impacted by the depreciation of the pound and the margin effect of measures put in place to address increased competition, said Carpetright.

Whilst the company admits it has long faced competition from “a vibrant independent sector” and from a number of national and regional retailers in the UK floorcoverings market, competition intensified significantly during the year. “A new national competitor rolled out an aggressive store opening programme and a number of smaller players also began competing more actively at a local level,” said Carpetright, with the first comment most probably a reference to flooring retailer Tapi, which was launched by the son of Carpetright’s founder Lord Harris of Peckham in 2015.

With regards shareholder dividend, Carpetright said its board continues to prioritise the use of cash for the acceleration of the strategy by investing further in the existing store estate, while also reducing the fixed occupancy costs as quickly as possible

Commenting on the results, Carpetright chief executive Wilf Walsh said: “I am pleased to report on a year of significant strategic progress, as we implemented a wide-ranging programme of investment and operational change, to refresh and update the Carpetright brand.  Our strategy is on track and the positive response we have received from these initiatives has encouraged us to press ahead with plans to complete the refurbishment of the UK store estate by the end of 2018 and to extend the programme in the Rest of Europe.    

“We have made an encouraging start to the new financial year, underpinned by the improving performance of our refurbished UK estate.  While a challenging consumer environment and competitive landscape remain headwinds, we are confident the additional potential in our self-help initiatives will support an increase in market share.”   

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