Investors in Carpetright (CPR) have breathed a sigh of relief as its full-year results showed the business might’ve turned a corner.
Its share price is up 11.5% to 19.7p in mid-morning trading after it reported a strong showing in the second half of its financial year, giving its overall results for the 12 months to 27 April a better look than some would’ve expected.
Plus the company has returned to like-for-like sales growth in the new financial year (albeit against an easy comparative).
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Given the terrible time Carpetright has had in recent years, the market is clearly pleased that the results are indeed in line with guidance and contain no ‘nasties’.
TRANSITIONAL YEAR
During what it calls a ‘transitional year for the business’, revenues were down 13% to £386m and operating profits were down 59% to £2.9m although it was very much a tale of two halves with a sharp dip in the first six months and a strong recovery in the last six months.
While in the first half like-for-like UK revenue was down 12.7%, this was cut to 5.4% in the second, and even better in the final quarter with like-for-like sales down just 2.3%.
While it seems like fortunes could be turning for Carpetright, AJ Bell investment director Russ Mould warned not to get carried away, and said some of the firm’s problems are out of its hands, such as the state of the property market and the pace of housing transactions.
PROBLEMS OUT OF ITS CONTROL
He said, ‘Moving house is a major catalyst for ordering new carpets, flooring or beds and if fewer people are moving one would expect demand for Carpetright’s services to ease back.
‘A recent survey by property portal Zoopla found that the gap between asking and selling prices in the UK had widened amid a weaker outlook for the property market.’
To keep sales ticking over, Carpetright has had to offer several promotions such as double discounts and interest free credit deals, but Mould added that the problem with this is that customers will expect it to be permanent.
He added, ‘It is very difficult to wean customers off discounts if they’ve become accustomed to hefty deals for a long time. Carpetright would face the risk that customers go elsewhere if they are presented with higher prices, suggesting its margins may not improve any time soon.’
