Carpetright hurt by fall in home buyers

Carpetright reported falling sales and an 11 per cent drop in first-half pre-tax profit to £9.8m ($15.5m) as it fought for market share in the face of a worsening housing market.

UK mortgages approvals in October were at a 19-month low, according to data from The British Bankers’ Association.

Slow housing market activity means fewer shoppers at Carpetright, which has been increasing its focus on customer service and its website in an attempt to attract more shoppers.

Lord Harris of Peckham, chairman and chief executive, said: “The market in carpets over the last three years has been dropping ... the only way forward when it’s doing that is to take market share, and we’ve been doing that but not so far enough to keep up with our like-for-like sales from three years ago.”

The group has also begun selling beds, sales of which rose 30 per cent in the six months to October 30, with accelerating growth in the second quarter. Although beds have a lower margin than flooring, Lord Harris said the company kept costs down by using existing warehouse and retail space.

First-half revenue fell 4 per cent to £248m as like-for-like sales dropped 6.1 per cent in UK and Irish stores and 2.9 per cent in the rest of Europe. Earnings per share were 10.4p, down from 11.5p, but cash generation helped the company reduce net debt by £12.8m to £58.5m.

The interim dividend is held at 8p and the company expects the full-year pay-out to remain flat at 16p if it meets its forecasts.

To keep its rental bill low, the group has been reducing the size of the average store. Over the next three years approximately 50 leases come up for renewal and the company is likely to shift some of those stores to new locations, said Lord Harris.

In spite of the falling sales, analysts remained optimistic about the company’s ability to wait out the poor housing market.

“Carpetright is a well run, cash-generative business which will emerge from this downturn in a stronger market position than before,” wrote Kate Calvert, an analyst with Seymour Pierce.

Carpetright’s growing bed sales and market share could help profits recover by 2012, according to analysts at Peel Hunt.

Source : Sarah Mishkin - FT.com