Tough times still ahead as retail group's sales fall

RETAILER Carpetright issued a downbeat trading update yesterday and warned that tough economic conditions would continue well into next year.

Group sales declined 5.2 per cent in the 12 weeks to October 23 compared with the previous period, with 0.5 per cent of the downturn attributable to the closure of its operations in Poland.

Like-for-like sales in Britain and Ireland were down 7.3 per cent. Carpetright has 25 stores in Yorkshire, employing around 100 people.

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Neil Page, group finance director, told the Yorkshire Post: "We are in a tough market at the moment. But we are doing everything we can to take advantage of opportunities that are there. But we expect conditions to continue to be tough well into the next calendar year."

Despite official data this week showing stronger-than-expected growth between July and September, Mr Page said: "There's nothing that's giving us a real positive boost at the moment."

He added: "The general level of consumer confidence is low as a result of tax rises and threats of unemployment, and levels of mortgages and house moves are significantly down from historical levels. We are expecting that to continue."

Mr Page said: "We are optimistic about the strength of our business. We introduced beds into 170 stores, which gives us a different product offer and the ability to improve our sales. That's a market we are going into to improve profitability. In the longer term, we have a very good business and when it starts to pick up, we will do very well."

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Carpetright plans to add another 50 bedding outlets before the end of the year.

Mr Page said public sector spending cuts would impact consumer demand, as it would reduce disposable income, but it was too early to say in which areas that would be felt.

Lord Harris of Peckham, chairman and chief executive, said: "We expect the full-year UK margin to increase by around 30-50 basis points through a combination of price and promotional management. The focus on effective cost management has continued. The group remains well placed to capitalise on opportunities when economic conditions improve."

Last month, the company announced it had made a recovery in profitability up to April 2010, after reporting a drop in underlying sales in August.

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Recent research showed that Carpetright gained market share as the UK carpet market contracted at double-digit rates, reflecting lower housing transactions and consumer caution on larger home projects.

An analyst's note from stockbroker KBC Peel Hunt said: "Carpetright has demonstrated the business is able to withstand a tough trading climate, with margin management and cost control reflected in rising cash generation.

"As housing transactions continue to remain at historically low levels, so sales are largely skewed to existing home improvement rather than house moves.

"However, as housing transactions recover over the medium term, so Carpetright will benefit from the upswing, albeit a factor for 2012 and beyond, we suspect."

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Keith Bowman, an equity analyst at Hargreaves Lansdown stockbrokers, said uncertainty in the housing market continued to take its toll on the company's share price.

"Despite clear exposure to an eventual recovery, fears for a 'double dip' in the housing market continue to dominate," he added.

An analyst's note from Deutsche Bank said: "The biggest downside risk would be if house moves do not recover from mid-2011 as we expect."

The group has 702 stores in total, across the UK, Ireland, the Netherlands and Belgium.

Shares closed last night at 677p, down 7 per cent.

PHILLIP HARRIS

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South London grammar schoolboy Phillip Harris took over the family carpet shop business in 1957. He is now the chairman and chief executive of Carpetright plc.

The Peckham-born businessman became a life peer in 1996.

Baron Harris of Peckham has donated money to philanthropic causes and

is a major sponsor of the Harris Academies in South London.