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Carpetright fraying at the edges

RESULTS: Carpetright's UK business is showing signs of recovery, but good news here is being overshadowed by terrible trading conditions on the continent.
December 11, 2012

Any hopes Carpetright (CPR) might have had for stronger performance in the first half of the year were dashed by deteriorating conditions in its European business. Like-for-like sales in the region fell 10.1 per cent which translated to a 17.7 per cent revenue decline in sterling terms. This was largely due to difficult trading in the Netherlands, where political uncertainty and austerity measures have hit the floor coverings market.

IC TIP: Sell at 680p

But poor results in Europe overshadowed positive growth in the UK, where Carpetright increased like-for-like sales by 0.7 per cent and gross margins bounced by 3.7 percentage points to 61.7 per cent, through a combination of improved sourcing and promotional planning. In the core retail business like-for-like sales rose 3 per cent which was an impressive performance given the fragile UK economy and subdued mortgage market, which is correlated to demand in the sector. Management attributes the company’s success to a series of self-help initiatives. Store refurbishments are delivering an average sales uplift of 10 per cent compared with peers, while branch closures are streamlining the business.

A large exceptional charge of £12.4m to cover onerous lease provisions, losses on property disposals and impairment charges depressed the reported figures, but on an underlying basis operating profits grew 46 per cent to £5.4m.

Broker Peel Hunt expects full-year pre-tax profits of £8.3m and EPS of 9.1p (£4m and 4.5p in 2012).

CARPETRIGHT(CPR)
ORD PRICE:674pMARKET VALUE:£ 460m
TOUCH:668-680p12-MONTH HIGH:753pLOW: 394p
DIVIDEND YIELD:nilPE RATIO:87
NET ASSET VALUE:93p*NET DEBT:26%

Half-year to 27 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2011238-0.8-0.90nil
2012227-7.9-9.50nil
% change-5---
*Includes intangible assets of £60.4m, or 89p per share