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Carpetright loses 8% after yet another profit warning

Lord Harris’ company says full year will be below expectations as discounting hits margins

Carpetright, which likes to style itself Europe’s leading carpet and floor coverings specialist, has seen its shares slump more than 8% after its sixth profit warning in a year.

The company said group sales in the 12 weeks to 21 January had fallen 3.8% with UK sales – hit by falling consumer confidence and fewer house moves amid the government’s austerity drive – dropping 4.8%. Based on current sales, Carpetright said full year profits would be below the lower end of City estimates. The company has been hit by having to discount to maintain sales – which is hitting margins – while its insurance replacement business reported disappointing results. It has relaunched its beds business and refurbished 27 stores, and taken action to improve profitability in its European business. Chairman and chief executive Lord Harris said:

Looking forward I see no respite from the challenging environment over the next 12 months but remain confident the group will emerge in a strong position to deliver future growth once consumer demand improves.

Carpetright’s shares are down 50.5p to 567p and Philip Dorgan at Panmure Gordon cut his recommendation from hold to sell:

This morning’s consensus according to Reuters is for pretax profits to fall by 33% to £11.2m for 2012 and our estimate is lower, at £9.9m. Feeding in the lower gross margin outlook, we now look for £8.2m.

Carpetright’s recovery has not panned out as expected, primarily because of the low level of housing transactions and its attempts to diversify both its product offer and its customer base have not yet filled the gap. That said, most commentators would argue that Carpetright is well managed and should do much better in more normal economic conditions. However, on our new forecast for 2013 earnings, the PE is 72 times which looks high, even for a cyclical recovery stock.

Sanjay Vidyarthi at Espirito Santo said:

The shares have risen by 54% since the end of November and now trade on a calendar 2012 PE of 42.7 times with no sign of a meaningful turn-around in earnings momentum yet. We maintain our view that Carpetright will see a recovery when the market turns, but the route back to peak profits is likely to be a long one, given lower sales densities and higher costs resulting from the expanded store base. Maintain sell.

Still with the high street, Dixons Retail is down 0.47p at 14.77p after the surprise news chief executive John Browett was quitting to join Apple. Simon Irwin at Liberum Capital said:

While we may have had issues with many aspects of Browett’s strategy there were clear signs of operational improvement versus peers in the past six months and it sends a very bad signal to the market in terms of its ability to retain senior staff, with the chief financial officer leaving recently as well. If ever there was a signal that Dixons is unlikely to make a significant recovery from current levels then the departure of both [executives] is it. The stock has risen 55% in the past month after a flurry of upgrades and I think we can expect it to give some of that back. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds