Floorings giant Carpetright’ trading performance has improved, with domestic like-for-likes flat in the first quarter against a 6.3% slump in the fourth quarter of last year.

However like-for-like growth came at the expense of margins as the retailer invested in increased levels of promotional activity. Carpetright now expects full year gross margin to be around 200 basis points lower than the prior year. 

Panmure analyst Philip Dorgan said the update will “lead to more downgrades to consensus earnings”.

In the 12 weeks to July 23 UK total sales however fell 2.3%. Group sales declined 1.5%.

In its European arm like-for-likes dropped 1.7% while total sales in local currency fell 2.3%. The European arm comprises the Netherlands and Belgium, as well as Ireland, which used to be reported along with the UK.

Carpetright chairman and chief executive Lord Harris of Peckham said: “As announced previously, we had expected consumer demand across Europe to remain subdued as we entered our new financial year, and this view is reflected in the update announced today.

“That said, we have seen an encouraging movement in UK like-for-like sales from the exit rate of the previous financial year, driven in part by our investment to support strong promotional activity, the growth of our bed sales and the roll out of our new laminate offer. 

“This investment, combined with an increasing proportion of beds in the sales mix, has diluted the gross margin and we currently expect the full year figure to be around 200 basis points lower than the prior year.  We continue to implement cost management initiatives and expect our full year UK costs to be below last year.”

Carpetright closed a net 25 stores in the first quarter, 16 of which were concessions within Focus DIY, which collapsed in May.

Harris said he expects a “continuing evolution of our UK store estate, with customers’ greater use of the internet as a research tool leading to a reduction in the geographic store density in certain areas, counterbalanced by ongoing opportunities to open new stores in specific catchments where we are currently under-represented”.

Harris said that despite “tough trading conditions” in The Netherlands and Belgium, Carpetright is continuing to grow market share.

Harris added: “Looking forward, I see no respite from the challenging environment over the next year but remain confident the Group will emerge in a strong position to deliver future growth once consumer demand improves.”