Analysts believe Carpetright is well positioned for when the recovery comes despite the floorings retailer reporting a first-half loss.
Seymour Pierce analyst Kate Calvert said: “Carpetright has the cash generation and dominant market position to ride out this downturn and will emerge a market leader.”
Carpetright reported a first-half pre-tax loss of £800,000 against a £9.8m profit last year. In the 26 weeks to October 29, underlying pre-tax profit slumped from £10m to £1.4m.
Peel Hunt analyst John Stevenson said adjusted pre-tax profit was “broadly in line with downgraded expectations”.
He said that while the environment remained tough and the housing market subdued, the launch of new bed ranges and an expectation of improved margins in the third quarter was “giving us hope for stability”.
Total group revenue dropped 3.9% to £238.4m.
In the UK, underlying operating profit tumbled from £11.3m to £800,000. Like-for-likes fell 2.4%.
Chairman and chief executive Lord Harris maintained that expectations for the year remain unchanged.
The 503-store retailer closed 36 stores in the period. Carpetright said leases on 93 stores were due to expire in the next five years.
Group finance director Neil Page said Carpetright was “very happy” with the majority of those stores, but that the expiries gave it the opportunity to reduce costs.
“There won’t be a significant difference in the number of stores,” said Page.
He said that the UK was “exceptionally difficult” and as a result Carpetright ramped up promotions in the period, contributing to a gross margins tumble of 430 basis points.
However, he said raw material costs were “coming down”, which should benefit margins in the second half.
In its European business, underlying operating profit increased from £1.3m to £2.9m.