Carpetright expects a sales fillip this autumn as consumers buy ahead of January’s VAT rise, and has posted an increase in preliminary profits.
The retailer’s pre-tax profit rose from £16.7m to £22.3m in the year to May 1 but the floor coverings market leader retained a cautious outlook.
Finance director Neil Page said the planned rise in VAT to 20% will bring a “boost in the autumn” but that in the new year the “level of demand will remain subdued”.
Carpetright chairman and chief executive Lord Harris added that a positive to come out of last week’s Budget was the news that lower paid workers would be better off. He said that gives Carpetright a “chance at the bottom end” of the market to increase revenues.
Harris was also confident of increasing market share. He pointed out that “a lot of small retailers are going each day” and that in a “very tough market there are opportunities for us to do more”. Carpetright’s total group revenue jumped 7% to £516.6m. Underlying operating profit in the UK and Ireland surged 67.9% to £26.2m.
Domestic revenue increased 7.9% to £425.2m and like-for-likes advanced 3.1%. The retailer said “the return to sales growth of the UK and Republic of Ireland business was the key driver” for the improvement in underlying operating profit.
Its operations in the Netherlands and Belgium delivered a total revenue rise of 4.1% to £89.2m and underlying reported operating profit increased 10.3% to £9.6m.
Page said the performance was “in line with expectations” and “significantly up on the prior year”. He added: “Overall we are in good shape but demand has been subdued since January and we expect that to continue.”
Harris said the retailer had benefited from a “tight control over all costs, capital expenditure, stock and cash flow”. The retailer gained additional sales through its insurance replacement business and said “significant activity” was devoted to developing an “appropriate offer for the house builder market”.
Shore Capital analyst Kate Calvert was cautious. She said: “Carpetright’s performance is often viewed as an early indicator of consumer spending trends and is related to housing transactions. Management talks about ‘planning for consumer demand across Europe to remain subdued’, which we believe implies that the market recovery remains fragile.”
Singer Capital Markets analyst Matthew McEachran said the figures were “slightly below expectation. We think the biggest risk relates to another housing slump.”