Carpetright has reported a 2.2% rise in its UK like-for-like sales but European like-for-likes collapsed, falling by 11%. Retail Week rounds up the reaction from the City.
“Our sense is that full-year 2014 will be much more about driving sales growth than gross margin expansion or operating cost control. In this respect, management points tentatively to signs of recovery in the housing market, albeit no commentary is given on current trade and the focus will be on self-help initiatives.
“There was an exceptional charge of £14.8m on which two points are worth noting: £8.1m onerous lease charge and £5.2m freehold property write-down. Carpetright took an onerous lease charge of £8.8m in FY11 on 20 stores. Of these, eight have been disposed while the provision on the remaining 12 has been increased by £2.7m. Carpetright has freehold property of £79.7m at market value. However, this has been written down in the books by £5.2m to £73.6m due to the weakening in the property market.
“We think these points are important because Carpetright’s large store portfolio is likely to prove a constraint going into any housing marketing driven sales recovery, in our view (20% of leases are scheduled for renewal over the next five years, so there is no silver bullet here).” - Sanjay Vidyarthi, Espirito Santo
“Today’s finals reveal the expected UK profit recovery at Carpetright, but the collapse in European profits (ie in the Netherlands) didn’t help and ‘underlying’ overall profit before tax of c£10m in year ended April 27 was swamped by £15m of exceptional write-offs relating to the UK property portfolio. Given the recent hype about a UK housing market recovery, Carpetright wisely stick to a cautious line on the economic outlook and, though they focus on the importance of “self-help” in driving the recovery in UK sales and gross margins, they didn’t feel confident enough to declare any final dividend.” - Nick Bubb, independent
“Although there are signs that the UK economic environment is becoming less hostile, the housing market and consumer confidence, both of which are vital for floorings purchasing, remain fairly weak. As such, Carpetright deserves much credit for its performance, which has been delivered because its various self-help initiatives against some fairly negative headwinds.
“Unfortunately, while the UK has recovered the European side of the business has seen a marked turndown over the past year. Much of this has been driven by highly unfavourable conditions in the Netherlands where government spending cuts which over the next seven years will amount to some 8% of GDP and are having a deleterious impact on consumer confidence. This, combined with the sharp downturn in the Dutch property market, where almost a fifth of homeowners are in negative equity, has sapped demand for floorcoverings.
“Despite the European difficulties, we remain confident that Carpetright has the strength, both in management and finance terms, to continue on its path of recovery.” - Neil Saunders, Conlumino
“Under a strengthened management team Carpetright has been deploying self-help in a number of key areas, including the store proposition and customer service. These are key to widening appeal and growing customer numbers. Product initiatives should also derive benefits as they become more authoritative in both flooring and beds, where they are improving marketing to increase awareness about the offer and its competitiveness.
“Short-term transfer gains are likely after Dreams’ store closures, particularly as Dreams’ founder has put launch plans for a new chain on ice. In summary, we believe the business proposition is improving at a time when flooring (housing) market conditions are stabilising.” - Matthew McEachran, Singer
“The UK performance has been helped by a slightly better marketplace and self-help. Europe continued to have a difficult time with the Netherlands the drag and Belgium and Ireland’s performance believed to be solid. Net debt at year end fell to £10.2m, in-line with guidance. The management has decided not to pay a dividend. Management’s explanation was that the economic environment remains uncertain and the board feels it is better to see a continued recovery in group performance before restoring the dividend. In addition we note the high exceptional charge which includes an onerous lease charge of £8.1m and a reduction in the carrying value of its freehold properties of £5.2m.
“The actions taken by management (extended offer into beds, laminate and luxury vinyl tiles as well as the on-going refurbishment programme) have stabilised the business with sales and profits now moving in the right direction. While the UK housing market and mortgage approvals have shown some encouraging signs of improvement, it is from a very low base relative to history and far too early to call a wider recovery we feel.” - Kate Calvert, Cantor