Carpetright slumps again after new warning

In 25 years as a stockmarket company, Carpetright investors have grown used to the pattern of profit warnings and purple patches in this most demanding of sectors. But rarely has the company been so up against it as today, with Carpetright now looking to the support of its banks after a second big profits downgrade of 2018.

The speed of the downturn has been stunning, with management warning that it will make a small underlying loss in the year to April 28, rather than its previous guidance on January 19 for a profit in the range of £2 million and £6 million. At the start of this year, City analysts were looking for profits of between £13 million and £15.6 million.

Much now hinges on the retailer’s performance over the Easter period and whether there's a spring bounce in the housing market. Things are hardly positive elsewhere on the high street, with Toys R Us and Maplin the most recent trading casualties and the current cold weather adding to the pressure on customer footfall.

With such uncertain prospects, it's little wonder that Carpetright shares were down more than 25% today, and at one point as low as just 52p. They peaked at 1,340p in summer 2007 and were still worth 700p as recently as 2013.

Source: interactive investor   Past performance is not a guide to future performance

In the meantime, chief executive Wilf Walsh is working on a range of options to accelerate the turnaround of the business and strengthen its balance sheet.

The company is "proactively engaged" in discussions with its lenders in order to ensure it continues to comply with the terms of its bank facilities. Carpetright said: "The bank lenders have indicated that they currently remain fully supportive."

The group recorded net debt of £22.8 million at the end of October, an increase of £13 million compared with the end of the last financial year in April. Problem here is that if potential customers get wind that something's wrong, even more could decide to shop elsewhere.

Carpetright, which started as a single store in Canning Town in 1988, has upgraded more than half of its UK estate with a new brand identity as it looks to address competition from Tapi, set up by the son of Carpetright founder Lord Harris.

The threat from Tapi has had an impact on margins and partially offset the upside of some of its capital refurbishment. However, the company warned in December: "The cost of ignoring the competitive threat and continuing with an under-invested, unattractive store offer would be severe. We are managing this threat effectively."

It said 52 stores trading against a new competitor for more than 12 months had delivered like-for-like growth of 5% on average during the first half of the financial year. Carpetright trades from more than 400 stores in the UK, with around 130 in Europe.