Retail Viewpoint – Carpetright
Investment in store environment and customer service has supported like-for-like sales growth at Carpetright, but also contributed to a decline in underlying profits, falling £1.3m to £3.6m.
UK like-for-likes grew by 0.7%, aided by the refurbishment of 20 stores during the period, with like-for likes in refurbished stores up 4.0% during the period. Flooring drove this uplift, rising 2.7% on a like for-like basis – a result of improvements in customer service and more customers trading up using interest-free credit, with participation increasing by 1.8 percentage points to 18.5%. However, heavy discounting in beds ahead of launching a new range stunted growth somewhat. The 0.8% decline in total UK sales was caused by the net closure of six stores and four concessions, though three of these closures were late in the period.
Carpetright reported that its full-year profits are set to be at the lower end of expectations, contributing to its share price falling by 5.4% in early trading. While the stated figure is still above last year’s level (£15.2m compared to £14.8m), Carpetright will need to drive cost savings and continue its momentum in the rest of Europe, where like-for-likes grew by 9.2% for the first six weeks of the period, as achieving sales growth in the UK in early 2018 will be tough.
The next six months will provide a true litmus test of how well Carpetright’s strategy in the UK is working. Weak consumer confidence for big-ticket items and continued store closures as the retailer works towards its target of 400, means Carpetright will continue to struggle with revenue growth in the UK. However, Carpetright’s like-for-like growth in this H1, and a 1.4% increase in the first six weeks of H2, indicate that its investment is gaining traction with shoppers. Once conditions improve, Carpetright will be well placed to drive sales and profit gains.
Source: GlobalData 17th December 2017