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Carpetright Considers Sale

Carpetright Reigate Concept Store 725 x 500.jpg

Carpetright has announced an update in respect of its long-term financing arrangements, advising that it needs £80 million to repay its debt facilities, meet ongoing capital requirements and execute its long-term strategy.

The Company has been actively exploring various long-term financing solutions including standard "high street" refinancing, asset-backed lending, strategic asset sales and equity financing. Having now explored the viability of all of these possible options, the Board has confirmed it is in discussions with Meditor - Carpetright's biggest shareholder - in relation to a possible offer of 5p per share, which values the company at £15.2 million.

Trading update

The Board believes that Carpetright is performing well despite the challenging economic backdrop and intense sector competition. Group profitability is improving as the Company drives store efficiency and reduces the central cost base.

The Company continues to display strong range management across categories, with a key focus on expanding in hard flooring and digital, in line with its strategic growth objectives.  Whilst management of supplier terms has been challenging, the Company continues to work well with partners in its supply chain and expects this to yield an improved position moving forward.

The Company's average sales per store ratios have improved in recent periods and the prolonged sales decline appears to be bottoming out; however, in the present UK economic climate, the Board remains cautious. In H1 FY20, LFL sales growth has been achieved in all territories, however the ongoing impact of negative consumer confidence and Brexit on the current retail environment could present a challenge in the balance of the financial year.

The European business, driven by performance in the Netherlands and Belgium, continues to trade well and the Company believes that it is in a good position to improve profitability.

Strategy and growth initiatives

In line with UK retail generally, the current flooring market remains challenging, reflecting the wider economic and geopolitical backdrop.  Carpetright's position as market leader nevertheless remains strong, with recent surveys showing high levels of brand awareness (88% prompted, 64% unprompted) and an engaged and dedicated workforce.  The Company further believes that the fundamentals of the floorcovering market are good, with the UK flooring market expected to grow at a CAGR of 1.9% from £1.97 billion in 2019 to £2.12 billion in 2023.


The Company's strategy is focused on several key areas including: implementing IT infrastructure upgrades across the UK business to drive efficiencies and further online opportunities; entering into new partnerships, such as with Furniture Village, to deliver increased customer reach with minimal capital commitments; a continued drive to optimise the UK store estate through selective closures and relocations to further reduce costs; and investing in and delivering improved returns from the Company's operations in the Netherlands and Belgium, together with a turnaround of its currently loss making business in the Republic of Ireland.

Growth initiatives following a refinanced balance sheet

As a result of the Company's current balance sheet constraints, its capital expenditure in recent periods has been limited. With a strengthened balance sheet and an injection of growth capital, following the refinancing the Company expects to invest further in the following areas: the store refurbishment programme; staff training; the development of its digital platform; marketing; and its operations in Continental Europe. The total cost of these initiatives over the medium term is expected to be £20 to £25 million, to be funded as result of the proposed refinancing.

The Company will also use the new funds to mitigate the impact of competition in the sector. In the longer term, the Company will explore opportunities to improve its sourcing arrangements, further develop its distribution model and evaluate potential acquisitions.

Bob Ivell, Chairman of Carpetright, said:

"Shareholders will be aware that we have been engaged in comprehensive refinancing discussions to replace existing facilities which expire at the end of this calendar year. The Possible Offer being announced today would put in place a new financing structure for Carpetright which would enable us to continue our recovery and make necessary investments in improving our business."

Source : Insight DIY Team and Carpetright

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31 October 2019

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