Profits warning as Carpetright floored by higher costs

Carpetright delivered a new warning on profits yesterday after it admitted it was struggling to pass on higher costs to cash-strapped consumers.

The floor coverings specialist said sale prices on many lines were being held in order to ensure its products remained competitive.

With margins squeezed and same-store sales down 6.3 per cent in the UK and Ireland over the 11 weeks to April 15, Carpetright said it now expected profits “slightly below” its 2009 benchmark of £17m.

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It is the company’s third profits downgrade of the year after Carpetright warned earlier this month that profits were likely to be “broadly in line” with 2009.

Prior to its first warning in February, analysts had expected Carpetright to post annual profits in the region of £26m.

The company has seen no let-up in grim trading conditions as households put off major purchases in the current uncertain economic climate.

The low level of mortgage approvals and VAT’s rise to 20 per cent have also impacted the firm, which is the UK’s biggest floor coverings retailer.

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Lord Harris of Peckham, chairman and chief executive, said increases in raw material costs had put pressure on store prices.

He added: “While we have, where possible, looked to pass some of this increase on to customers, the ongoing difficult trading conditions have required us to hold sale prices on many lines to ensure they remain at a competitive level.

“As a consequence, we now expect the total UK and Ireland margin will be flat year on year.”

The company has begun talks with lenders regarding the renewal of existing facilities which run to July 2012.

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“We have not got an issue with our current covenants. Clearly there is less headroom but there is not an issue with those,” finance director Neil Page said.

Carpetright has 562 outlets in UK and Ireland and a further 120 in the Netherlands and Belgium. It has 25 stores in Yorkshire, employing around 100 people.

“It seems to us that former confidence on the ability to pass on raw material cost inflation is stalling,” said a note from analysts at Singer Capital Markets, predicting that Carpetright would dominate its market when better times returned.

America’s richest man Bill Gates is a six per cent shareholder in the company.