Carpetright rolls lower after mixed third quarter

26th Jan 2016 08:58

(ShareCast News) - Carpetright shares fell to 12-month lows in early trade after management cut profit margin guidance and revealed sales slowed in recent weeks.Like-for-like sales in the 12 weeks to 23 January rose 2.4%, versus the exceptionally strong rise of 7.5% the year before, though festive LFL sales in the last four weeks rose by a better 6%.Total domestic sales decreased by 1.3% in the period due to the store estate rationalisation. "While we saw some softening of like-for-likes in the pre-Christmas period, reflecting lower footfall, customer numbers recovered in the important January sale period," said chief executive Wilf Walsh.He said the trading performance over the last four weeks against the exceptional prior year, gave confidence that the enhanced interest free credit offer and strong promotions launched on Boxing Day are "hitting the spot" with customers.Outside the UK was better than expected, with European LFL sales up by 4.2% at constant currencies, with total sales up 4.4%, or down 2.7% if including the impact of currency movements.Walsh said this reflected the recovery of consumer spending, particularly in the Netherlands and the Republic of Ireland.For the full year, guidance for the decline in gross profit percentage was lowered to 100-150 basis points from the previous 50-100bps.This reflected a high level of discounting in the market and a greater proportion of beds and smooth flooring in the sales mix, the company said, while analysts suggested the possibility that increased competition may also be a factor on gross margin progression.Broker Shore Capital said the update reflected a period where trading on the High Street was much more challenging."It is also possible that the UK consumer may have prioritised lower ticket purchases during the run up to Christmas in light of an increased promotional environment, whilst being fully aware of the propensity to discount, after the festive period, by home furnishing retailers," analyst George Mensah said. "However we remain bullish on the stock given both, the acceleration in trading post Christmas, where LFL sales increased 6.0% and also what we believe to be the long-term benefit of operating from a much smaller base of retail stores."ShoreCap's guidance for full year profit expectations remains unchanged at £17.5m.