Carpetright: What the analysts say

Margins and consequently profits are both down on the back of reduced demand from consumers and a necessary increase in discounting and promotional activity. At one level, the fact the business has remained in positive profit territory is encouraging; however, profit levels are now extremely thin (£2.8m on an operating level in the UK, down from £17.8m last year) and there is little room for further erosion. As such, the new financial year needs to be one where both margins and sales are rebuilt and costs remain under tight control. On the growth front, some of the initiatives such as a broadening of the offer to include modern floorings such as laminates and developing the bed offer will pay dividends and are currently showing reasonable levels of growth. Indeed, in our view these elements of the mix helped Carpetright move its like-for-like sales into positive territory during the second half of its financial year - Neil Saunders, Conlumino

This morning’s consensus for full-year 2013 according to Reuters is for pretax profits to almost triple to £10.5m. We look for slightly less than this, at £10m. We don’t doubt that, under its new chief executive, Darren Shapland, there is considerable profit opportunity. However, this looks to be priced into the shares - Philip Dorgan, Panmure Gordon & Co

Property value is now estimated at £86m which is slightly less than the £100m we would have anticipated post disposals. The pension deficit is £4.3m. There is no dividend as expected. Although the move back to positive like-for-likes in the UK in the second half was encouraging, management indicate it is too early to call the start of a broader recovery, particularly as some of the floor-coverings market recovery could have been stimulated by the temporary stamp duty relief on lower end properties. There is greater transparency in these results than previously, possibly reflecting an initial impact of the new chief executive Darren Shapland. The strategy remains consistent but activity around stores (closures/refits/service enhancements) appears to be increasing and there is clearly a drive to grow both Beds (now 6% of sales) and other categories (e.g. Laminate). Alongside sharper prices, a new coaching/development programme and investment online, the leading player in the market should continue to grow share, and help offset a drop-off in the insurance business. – Matthew McEachran, Singer Capital Markets

Carpetright looks to be emerging from a period of turbulence in the UK with quarterly LFL’s returning to growth for the first time for two years, albeit against weak comparatives. While investors will be disappointed that profits were at the lower end of its estimates, that it is producing a profit, given Allied Carpets was sold in a pre-pack for the third time in three years and United Carpets is reviewing its store portfolio, is a credible performance. However, we believe that its strategy has been correct: investing margin in developing its offer through improving its service levels and store environments, diversifying its offer to cover more premium brands, beds and laminates and remaining price competitive. By doing so, Carpetright has positioned itself to be one of the main winners once the housing market recovers – Matthew Walton, Verdict