Shares in Carpetright are looking threadbare, down nearly 6% after the floorcovering group run by Lord Harris issued a profit warning.
In an update brought out a day earlier than expected, it said total sales in the 13 weeks to the end of January fell 6i.4%, with UK and Ireland like for like sales down 7.7%. The company said:
Given the difficult trading conditions... the board now expects profits for the year will be below last year and below the current range of market expectations.
However the snow is not the company's only problem, with the housing market showing little sign of improvement, and therefore consumers not that keen on buying carpets at the moment.
Carpetright is currently down 41.5p to 688p, and the sell notes are out in force. Nick Bubb at Arden said:
The third quarter update has come out a day early and is accompanied by yet another profit warning. The 7.7% like for like fall in the last 13 weeks in the UK is pretty shocking, given how bad January was a year ago (Carpetright was the first retailer to moan about the snow disruption in January 2010) and implies that there are other issues at work.
The current market range for full year profit before tax is £24m-£28m (we are bottom of the range on £24m) and Carpetright seem to be indicating something in the low £20m's: perhaps £21m, which would imply a PE of 33 times at last night's close of 730p. The extraordinarily demanding PE can only be justified by a sharp cyclical recovery in the business, but the opposite seems to be happening and in a tough carpet market our suspicion is that Carpetright is losing market share. We still target no more than 450p and maintain our sell on valuation grounds, as the shares will crack today.
Kate Calvert at Seymour Pierce also recommended selling the shares:
While Carpetright is a well run, cash generative business, which will emerge from this downturn in a stronger market position than before, this update highlights the fragility of consumer demand. We expect 2011 to remain another difficult year for the carpet sector.
In addition, we would not be surprised if this update may send a 'warning shot' across the retail sector as it appears that January's VAT increase and deteriorating consumer confidence has indeed impacted underlying consumer demand further and seems to confirm Kesa's comments on Comet's trading in January and anecdotal evidence elsewhere.
