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Carpetright trading improves year-on-year during Q3

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Floor coverings retailer Carpetright has reported like-for-like sales up 7.5% in the UK in its third quarter following new Boxing Day offers.

For the 13 weeks to January 24, Carpetright’s total sales increased by 6.6% and in the rest of Europe, like-for-like sales increased by 1.7%.

For the British retailer, total sales declined by 0.8% which becomes 6% after the impact of currency movements.

Carpetright chief executive Wilf Walsh said:

“I am pleased to report that the Group’s trading performance improved year-on-year during the third quarter.

In the UK our continued focus on effective promotional activity and the introduction of an interest free credit offer from Boxing Day has delivered a like-for-like performance slightly ahead of the level experienced in the first half. Sales in our Rest of Europe business have also continued to improve.

Trading remains in line with management’s expectations and our view for the year as a whole remains unchanged.”

Greg Bromley, Consultant at Conlumino, comments:

“This represents a fairly positive performance for flooring specialist Carpetright, which has seen a strong sales growth in the UK at the same time as fairly weak, yet improving trading at its international business. Crucially, these figures are much stronger than over the same period last year, when the retailer issued a second profit warning in four months as group sales dropped 0.5%.This time round, international sales, while still declining, have improved significantly, and the retailer has stated that overall group trading performance has therefore increased on a year-on-year basis.

At its UK arm, LFLs grew by a healthy 7.5%, which suggests Carpetright is beginning to feel some effects of its new strategic review launched under Chief Executive.The retailer is looking to retain its core value heritage, while simultaneously aiming to attract more affluent consumers from premium rivals such as John Lewis. The retailer states its promotional activity over this period was effective, while the introduction of an interest free credit offer from Boxing Day helped to bolster LFL performance. Credit offers have become increasingly popular among big ticket furniture and flooring retailers over recent years, encouraging consumers to purchase and pay later or pay in chunks. While this may boost sales figures in the short term, we do not believe this to be a sustainable and sensible strategy to rely on in the long term, with it possibly leaving the retailer with cash flow problems and unpaid balance issues in the future.

The retailer closed two further stores over the period to leave it with 461 outlets, and states that full year guidance for a decline in gross profit percentage of 100-150bps remains unchanged, likely due to continued store investment.

While its Rest of Europe business has been showing signs of improvement, it now has another challenge to contend with in currency issues. To this end, while total sales saw a modest decline of 0.8%, after the impact of currency movements this translates to a 6.0% decline in total sales. However, with LFLs up by 1.7%, this suggests that while Carpetright is now managing to get people to buy at its stores, the value of these purchases has declined due to the weak value of the Euro and general economic uncertainty in these countries. Two stores closed over this period, leaving the retailer with 137 stores trading in these countries, while full year guidance for an uptick in gross profit of 250bps is unchanged.

Overall, this is a relatively positive set of results for Carpetright. In the UK, the solid uplift in LFLs suggests the retailer is moving in the right direction as its new growth strategy is implemented. Elsewhere, while currency issues are likely to remain a major issue going forward, trading on a LFL basis at its international business is beginning to look more positive.”

Published on Tuesday 27 January by Veebs Sabharwal

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