Carpetright turns it around, share rise 10%

Equities

Carpetright looks to be on track. CEO Wilf Walsh has got things sorted out it seems.

April’s trading update flagged a good year end with management reporting that the UK like-for-like sales trend improved significantly in the fourth quarter as customer confidence in the business started to return. 

Today’s FY results show it has been a year of two halves – CVA and restructuring efforts in the first half left UK LFL revenues down 12.7%. But the second half was much stronger – the decline reduced to 5.4%, and 2.3% in Q4. Full year revenues declined of 17% and LFL declined 9.1%. The UK underlying EBITDA loss of £400,000 was in line. Rest of Europe reported revenue growth of 1.9% and like-for-like growth of 3.4%, again with a much stronger H2. 

Group revenue decreased by 13.4% to £386.4m. Underlying EBITDA of £2.9m is in line with expectations. Pre-tax loss fell to £24.8m from the £69.8m last year. 

This all sounds rough but it has genuinely has been a transformative year for the group. Carpetright has closed a thumping 80 stores and reduced rents to zero on 23 further outlets. They’ve thrown the kitchen sink at the problem and it’s working. 

Crucially the new year has started very well – UK like-for-like sales in the first eight weeks ahead by 8.5% against the prior year comparative. LFL sales in Rest of Europe were ahead by 4.3%. 

This is not a surprise – we noted in December the encouraging signs from Carpetright’s interim results that indicated that its restructuring is on track. And the second half has only been better. 

The problem for Carpetright was simply that it had expanded too quickly with too many stores on bad sites with overly-long leases and upwards-only rent reviews. That’s fine in the good times but when the market softens you are left exposed. Action to tackle this singular problem has been swift and is paying off.  

And as we noted in December, Carpetright has moved on from the reputational concerns in relation to negative headlines earlier in 2018. The upbeat start to the new financial year confirms this.”