Carpetright is implementing a raft of initiatives in its Netherlands business to try and offset the economic turmoil in the country.
The floorings giant said this morning that it expects to post a loss in its European business – which also comprises Belgium and the Republic of Ireland – after its performance was hampered by a poor performance in the Netherlands in the third quarter.
Carpetright said that as a result it expects full year group profits to come in at the lower end of expectations, despite a robust performance in the UK where profit is expected to be up on last year.
Carpetright group finance director Neil Page said the retailer has “transported over” some of the initiatives it has implemented in the UK to try and revitalise its fortunes in the Netherlands, which has been hit by a fall in consumer confidence following government austerity cuts.
The retailer has revamped 23 of its 95 stores in the country and has also piloted a beds offer in six stores, although Page said early indications were below expectations.
Carpetright will also look at adjusting the product offering and exploiting lease renewals in the country. “We have the opportunity to negotiate leases,” said Page, who added that the average lease length in Europe is three to five years, compared with nine in the UK. But he added: “The vast majority of stores are profit making.”
Carpetright executive chairman Lord Harris, who came out of retirement to lead the business after chief executive Darren Shapland stepped down in October, said: “Trading in our Rest of Europe business continues to be dominated by the extremely difficult economic conditions in the Netherlands. As a result we now expect this business unit to be loss making for this financial year, although we still expect it to remain cash generative.”
Harris pointed out that just two years ago the Netherlands business was making £10m. He said the market has collapsed by 25% in that time. He added that Dutch rival Beter Beds has suffered a 17% sales fall in its most recent reported year.
“It’s very poor over there,” said Harris. “But it does change very quickly.”
Like-for-likes in the Europe division slumped 7.7% in local currency in the 13 weeks ended January 25. This compares with a 1.9% rise in the UK, and a 2.5% increase excluding wholesale. Carpetright expects full-year UK margins to be up on last year.
Page said the UK delivered a “solid set of numbers”. He highlighted that the third quarter performance was up on the first half when UK like-for-likes were flat.
“There are encouraging signs,” said Page. “The modernisation [of the store estate] is helping, along with the bed business.”
He added that the benefits of the housing market are “yet to come”. “We’re optimistic but still cautious,” said Page.
Carpetright has modernised 242 stores in the UK. Page said he was “pleased” with the performance of beds in the January Sales period. For floorings, the period is less important, he added.
Page said Carpetright’s online offer is performing well, with sample requests up 34% year-on-year.
Harris added: “In view of the market conditions, predicting the final outcome for the year with any accuracy is difficult and the result for the year will depend on our performance in the final quarter.
“In the UK, the pace of the recovery remains uncertain in the face of continuing sales volatility but we are confident that our self-help measures have further potential. However, with a further weakening of the market in the Netherlands, we now expect underlying pre-tax profits for the full year will be below the lower end of the current range of market expectations.”
Carpetright warns on profits as Netherlands business suffers
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Carpetright to employ raft of initiatives to lift ailing Dutch arm