Carpetright Slumps to £70m Loss as it Rebuilds following CVA

Carpetright has reported a loss of just over £70m for the full trading year ending 28th April 2018. The troubled flooring retailer agreed a rescue plan earlier this year, resulting in the planned closure of 81 of its UK stores.

Financial Highlights Group

• Group revenue decreased by 3.0% to £443.8m (2017: £457.6m).
• Underlying EBITDA of £6.4m (2017: £28.6m).
• Underlying loss before tax of £8.7m (2017: profit of £14.4m), in-line with previous guidance.
• Net debt position of £53.0m (2017: £9.8m) reflecting the decline in operating performance and tightening of credit terms by suppliers responding to adverse publicity surrounding the Group’s restructuring.
• Separately reported items of £61.8m (2017: £13.5m), driven mainly by the costs and accounting impact of the restructuring activity, of which £49.0m is non-cash, leading to a statutory loss before tax of £70.5m (2017: profit of £0.9m).

United Kingdom

• In tough trading conditions, like-for-like sales in the full year declined by 3.6% (2017: decline of 0.5%) with a decrease of 7.8% in second half of the year offsetting the increase of 0.7% reported for the first half.
• Underlying EBITDA of £2.9m (2017: £20.9m), the combination of the sales decline and a lower margin rate.

Rest of Europe

•  Like-for-like sales growth of 1.2% (2017: 2.5%), driven by service related income and currency translation.
• Decline in underlying EBITDA to £3.5m (2017: £7.7m) a result of a lower margin rate and inflationary cost pressures.

Strategic progress

•  Legacy property issues being addressed with a Company Voluntary Arrangement – 81 UK trading stores to close by end of September 2018.
• Further progress made with the introduction of new branding and contemporary store-fit – 227 stores in the UK trading under the new brand identity by the end of April 2018 (55% of the UK estate).
• Refurbished stores continue to outperform the uninvested estate.
• All remaining UK stores to be receive additional investment by the end of the CVA period in 2021 with priority being given to most profitable sites.
• UK like-for-like sales of hard flooring increased by 9.2% reflecting our greater strategic focus on this category.
• £65m of equity financing completed after the period end to fund implementation of the CVA and provide the necessary capital to refurbish and modernise the ongoing store estate and upgrade our digital platform.

Download the full trading release here.

Current Trading Position

• As expected, trading in the first eight weeks of the new financial year was heavily impacted by the disruption arising from the Group’s restructuring activity, in particular stock shortages as some suppliers had withdrawn supply, and the period of exceptionally warm weather.
• In more recent weeks, following the approval of the CVA and completion of the recapitalisation, the Group has begun to see the benefits of stock replenishment by suppliers and less negative publicity, although UK like-for-like sales remained negative.
• Sales growth has been restored in the Rest of Europe following appointment of new leadership.

Commenting on the results Wilf Walsh, Chief Executive, said:

“After a difficult trading year impacted by reduced consumer spend, increased competition and the legacy of an unsustainable, over rented store portfolio - the CVA and recapitalisation offers us the chance to rebuild Carpetright which remains the clear market leader in floor coverings with outstanding consumer brand awareness. This will be a transitional year for the Group as we work through our recovery plan.” 

Read - Carpetright CVA Proposal.

Analysis & Commentary

Fiona Cincotta, Senior Market Analyst at City Index has kindly provided Insight DIY with her perspective:- 

“Adjusted profits have met the company's guidance, but a lot of red ink has been spilled here. And it will be hard to scrub out the stain. On the positive side, the performance of the hard flooring business is encouraging, as Carpetright adjusts to consumer preferences for longer-lasting and easier-to-clean surfaces.”

“The new design format has now been rolled out to more than half the store portfolio and many of those individual outlets are capable of turning a profit. Overall, though, there's little in the outlook statement to give investors a great deal of confidence that the worst is over for Carpetright.”

“Even with interest-free credit on offer, consumers are still bristling at the idea of dishing out thousands of pounds on big-ticket items. With rival Tapi showing few signs of blinking, a swift recovery in margins isn't assured, even if consumer confidence improves.”

Source: Insight Home Team & Carpetright press release.

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