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Carpetright calls the bottom

Carpetright believes its latest awful figures mark a nadir, but with wider economic troubles looming there's still plenty that could go wrong
December 13, 2011

Battered Carpetright saw its shares bounce, despite axing its half-year dividend and reporting an 86 per cent drop in underlying pre-tax profit, as management pointed to an anticipated improvement in second-half trading, which means that it will hit full-year forecasts.

IC TIP: Sell at 437p

Of course, those expectations have been pared back significantly after no less than five successive profit warnings in the past 12 months. They've come as a result of a challenging consumer environment that knocked another 2.4 per cent off underlying sales in the period, but also as a consequence of falling gross margins - down 430 basis points in the half due to high levels of promotional activity and, most significantly, a higher proportion of less profitable bed sales in the mix.

While management expects another 200 basis point decline in the second half, they argue that this will be offset by a new value bed range that will steal share from rivals, a new laminate floor offering, a store closure and refit programme, and ongoing cost savings. Costs were reduced by £4.8m in the period, and continue to be reviewed.

Peel Hunt expects full-year pre-tax profits of £11.9m, and EPS of 12.8p (£16.9m and 17.9p in 2011).

CARPETRIGHT (CPR)

ORD PRICE:437pMARKET VALUE:£294m
TOUCH:436-441p12-MONTH HIGH:847pLOW: 375p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:99p*NET DEBT:83%

Half-year to 29 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20102489.810.48.0
2011238-0.8-0.9nil
% change-4---100

*Includes intangible assets of £64.2m or 95p a share