Carpetright shares dive even though profits rise 64 per cent

Sales rose 3.1 per cent on a like-for-like basis acr oss its 586 stores in the UK and Ireland.

But underlying profits of 28.2m for the year to May 1 are still far short of the 62.1m made in 2008 and the group reiterated its previous warnings over the outlook for spending by consumers.

The shares reacted badly, diving by 10 per cent to close at 640p – a fall of 70p.

Carpetright's sales staged a marked recovery early last year – reaching double-digit growth before December – but this slipped to 1.5 per cent in the fourth quarter.

Chairman and chief executive Lord Harris – a retail veteran with more than 50 years in the business – said it would be a "very tough" year for consumer spending amid Government cuts and tax rises.

The group is to push further to secure contracts with insurance firms and with housebuilding groups in order to offset weak retail conditions.

It is also striking deals in the public sector, offering discounts to the police service and health workers in an attempt to tap into a vast customer base.

Carpetright is likewise linking up with estate agency Countrywide to offer promotional schemes to customers.

"It's difficult and it's challenging, but on the other side there's opportunities," said Lord Harris.

The group hopes the impending VAT rise to 20 per cent next January may drive sales at the end of 2010 as customers rush to make purchases before the increase comes in.

It is also optimistic that Government austerity measures may be less harsh on lower-paid workers – the bulk of its customer base, with 60 per cent of Carpetright customers spending less than 100.

Yesterday's results came after Carpetright warned over profits in March following worse than expected sales.

The group did not provide any update on trading since the year end, saying only that consumer spending was "subdued".

Carpetright has 537 stores and 49 concessions across the UK and Ireland under the Carpetright, Storeys and Sleepright brands.

It also has 117 outlets in the Netherlands and Belgium, where trading has been improving, with underlying operating profits up 10.3 per cent in the year to May.

The business recently pulled out of Poland after a review last autumn.

Singer Capital Markets analysts said the biggest risk facing

Carpetright was the threat of another housing slump.

"Although there are numerous initiatives to deliver growth, these risks could yet impact forecasts adversely," they said.