Floorings retailer Carpetright has issued a profit warning despite an improving trend in sales.
The retailer said: “Whilst self-help initiatives are improving the Group’s performance, based on the current pace of sales and margin improvement, full year underlying pre-tax profit is expected to be slightly below the lower end of current market expectations.”
Carpetright reported flat UK like-for-likes in the 12 weeks to January 21, an improvement on the 1.7% drop recorded in the 38 weeks to January 21.
UK total sales dropped 4.8% while group sales fell 3.8% in the 12 week period.
In its European arm, comprising The Netherlands, Belgium and the Republic of Ireland, like-for-likes were flat.
Carpetright chairman and chief executive Lord Harris of Peckham said margin for the second half will moderate at around a 300 basis points decline, compared to a fall of 430 in the fist half. The 300 figure is “slightly down” on the retailer’s expectations, reflecting higher levels of promotions in the tough trading environment.
He added that sales in its insurance business have been “disappointing”.
He said: “Tough trading conditions in the UK persisted in the third quarter of our financial year with fragile consumer confidence producing a difficult floor coverings market.
“We have said in the past that the like-for-like sales performance has been volatile, and this continues to be the case, with volumes remaining sensitive to levels of promotional discounting.
“Against this tough backdrop we have continued to focus on a range of self-help initiatives and have made progress in each of these areas. The response to the re-launch of our bed proposition in January was encouraging and we have completed the refurbishment of 27 stores, which are delivering good growth.
“We have continued to take a determined approach to reducing the cost base and expect this to be down by approximately £5m year on year, in line with our previous expectations.
“We are delighted that the actions taken in our Rest of Europe operations are now delivering growth in like-for-like sales and an improvement in profitability. We are particularly pleased with the success of the recovery plan in the Republic of Ireland.
“In this current environment, predicting the final outcome for the year with any accuracy is difficult. The result for the year will depend on our performance in the final quarter when we see some weak comparatives but, with sales volatility continuing to impact on the pace of margin improvement, we expect underlying pre-tax profits for the full year will be slightly below the lower end of the current range of market expectations.
“We expect the year end net debt to be significantly down on the previous year, at around £43m.”
“Looking forward, I see no respite from the challenging environment over the next 12 months but remain confident the Group will emerge in a strong position to deliver future growth once consumer demand improves.”