Carpetright Posts Profit Drop, Says Sales Will Worsen

By Amy Wilson

July 1 (Bloomberg) -- Carpetright Plc, the U.K.'s largest carpet retailer, posted a 7.6 percent drop in annual profit as costs related to acquisitions increased, and said sales will worsen this year as Britons spend less refurbishing their homes.

Net income fell to 42.8 million pounds ($85.3 million), or 63.2 pence a share, in the year ended May 3, from 46.3 million pounds, or 68.2 pence, a year earlier, the Rainham, England-based company said today. Sales rose 9.6 percent to 521.5 million pounds.

``I believe that the next year will be one of the most difficult I have seen,'' Chairman and founder Philip Harris, who has been selling carpets for 50 years, said in the statement.

Carpetright fell to a five-year low in London trading. Home- furnishings and electronics retailers are reporting slower sales as higher living costs and falling house prices deter shoppers from refurbishing their properties. The retailer bought the 30- outlet Storey Carpets chain last year to shore up sales.

Carpetright declined 35.5 pence, or 5.4 percent, to 624.5 pence at 8:28 a.m. in London trading. A close at that price would be the lowest since June 30, 2003. The shares have fallen 27 percent this year, less than the 33 percent decline by the 18-member FTSE 350 General Retailers Index.

Finance Director Jason Grover said today he expects analysts to cut earnings estimates for this year, in light of falling house prices and fewer mortgage approvals. Before today's results, brokerage KBC Peel Hunt had estimated profit before tax and one- off costs of 55 million pounds for the year ending May 2009.

Netherlands, Belgium

Sales at U.K. and Irish stores open at least a year fell 2.7 percent in the year, Carpetright said. In the Netherlands and Belgium, revenue on that basis rose 6.7 percent. Grover declined to comment on sales since the fiscal year-end.

Business in the Netherlands isn't being hurt by a slowing economy, the finance director said. Carpetright yesterday acquired Dutch carpet and blinds retailer Ben de Graaff Tapijt.

Gross margins widened by 1.4 percentage points in Belgium and the Netherlands last year as Carpetright negotiated better terms with suppliers, Grover said.

Carpetright said in April it had increased the size of its network to 675 stores. The retailer also sells laminate and vinyl flooring, and has stores in Poland as well as the Netherlands, Belgium, the U.K. and Ireland.

Managers led by Harris scrapped a 630 million-pound plan to buy the company in December. Credit market turmoil hampered the executives' ability to secure funding, Harris said at the time.

Carpetright, started in 1988 with one store in London's East End district, said in April it would spend $27 million acquiring businesses to add 13 stores in Britain and 11 in the Netherlands.

The full-year earnings beat the 42.2 million-pound average estimate of three analysts compiled by Bloomberg.

Shareholders will receive a final dividend of 30 pence a share, raising the annual total by 4 percent to 52 pence.

To contact the reporter on this story: Amy Wilson in London at awilson23@bloomberg.net.
Last Updated: July 1, 2008 03:31 EDT