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Weak UK demand and Dutch losses hit Carpetright

Carpetright reported an increased annual loss of £7.2m as problems at its Netherlands business and weak demand in the UK weighed on Britain's biggest flooring retailer.

The pre-tax loss for the year to the end of April widened from £5.1m a year earlier. Excluding property losses, the cost of onerous leases and other exceptional items, pre-tax profit more than halved to £4.6m from £9.7m a year earlier.

The figures were in line with City expectations after forecasts were reduced by a series of profit warnings.

The slump in financial performance was mainly caused by a £3.8m loss at Carpetright's non-UK business, which is mainly in the Netherlands. Carpetright's expansion into the Dutch market in 2002 turned sour after the bursting of one of Europe's biggest property bubbles.

But business was also lacklustre in the UK, where revenue dropped 1.5% and like-for-like sales fell 0.2%.

Carpetright's business is closely tied to the property market because households buy new flooring when there is a high turnover of house sales. Britain's property market surged during the company's financial year but little benefit flowed through to Carpetright sales.

Lord Harris of Peckham, Carpetright's chairman, said the time lag before the improving UK property market feeds through to sales had increased because tighter regulation and taxes had eaten into homebuyers' disposable income.

"They have to pay a larger deposit than they used to and they have got stamp duties which gives them less money."

As a result, buyers are waiting to fit new carpet and flooring whereas before it was one of the first things they did, he said.

The company has issued a string of profit warnings since October, when its then chief executive Darren Shapland quit. Lord Harris, who founded Carpetright in 1988, became executive chairman promising to overhaul the business but sales continued to disappoint.

Carpetright has hired a new chief executive, Wilf Walsh, the former managing director of Coral, the bookmaker. Harris had said that with Walsh in place from next month he would leave the board at September's annual meeting and work as a consultant to advise Walsh.

He now plans to stay on as chairman after September until a new chairman arrives and he may then remain on the board as a non-executive director on the strength of his family's 20% stake in the company.

Harris said: "I will be the one who decides with the non-executives who the new chairman will be."

Carpetright was earlier this year forced to adjust its pricing policies after the Office of Fair Trading criticised it and other floor and furniture sellers for advertising reductions that were not genuine.

Harris said the business had not been affected by the OFT decision.

"We are acting well within the rules now. People get genuine prices with genuine discounts and we are doing that. We worked within the law and they wanted to change the law. We have seen no difference."

Harris has been revamping stores but Freddie George, an analyst at Cantor Fitzgerald, said Walsh would have to take further, radical action to overhaul Carpetright.

"His priority will be to update and modernise the current concept. This is likely to involve significant capital expenditure and restructuring costs. The current concept, in our view, is too focused on price and not aspirational enough for mainstream customer needs."

Carpetright's shares, which had fallen about 20% since early April, rose 2% to 509p.

Source : Sean Farrell - The Guardian

24 June 2014
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