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Carpetright focused on the future

All eyes will be on floorings giant Carpetright next week, as it is expected to report its worst first-half figures as a listed company.

Broker Singer forecasts the retailer to record just £1m in pre-tax profits and, while analyst Matthew McEachran praised chairman Lord Harris’s moves to increase share and diversify into beds, he raised concerns over the hit to margins.

At Carpetright’s last update, Harris said that selling beds and upping the ante on promotional activity was expected to lead to a 400 basis point decline in margin in the first half.

Next year, it must focus on restoring margins to “stave off further downgrades”, according to McEachran.

But further downgrades cannot be ruled out. The retailer’s performance is intimately linked to the housing market, which remains stagnant. For many squeezed households, a carpet purchase is not at the top of the shopping list, and may not be for some time. Carpetright cannot plan for an upturn in the market any time soon.

But Harris has recognised this and taken action including launching a property review to better manage costs. The diversification into beds seems to be shoring up sales for the retailer, which is opening standalone beds stores after hiring directors from Bensons for Beds. The category represents 6% of revenue and is expected to grow.

Carpetright has opted for the long-term strategy of putting market share gains before profit growth, and luckily, it can afford to. Underlying pre-tax profit may have slumped 40% to £16.9m in the year to April 30, but the retailer has constantly been gaining share, according to management, as rivals bear the brunt of the spending slump.

Allied Carpets now has a tiny fraction of the stores it once had, while large numbers of independents have been forced to close.

Carpetright certainly has the edge over its competitors, even if it is no longer wiping the floor with them.

Source : Nicola Harrison – Retail Week

09 December 2011
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