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Carpetright has little in its favour in current market
Archived article dated Wednesday May 7th 2008
Turn the clock back to December and Carpetright was riding relatively high at £11 per share and had a potential management buy-out in its back pocket worth £12.50 a share from its founder Lord Harris of Peckham.
By Glynn Davis
However, as soon as Harris started talking about having no problem raising the finance for his bid it was an early indication that he did have problems raising the finance for his bid and from then on it all unravelled. Unfortunately for shareholders it is continuing to unravel as its shares have continued to back peddle to a current 750p.
Even the rally last week in general retail stocks (that saw the likes of Carphone Warehouse move up 12.3 per cent, Next up 11.7 per cent and Marks & Spencer 10.7 per cent) has had only a marginal effect on Carpetright as a gain of 4.5 per cent in its share price has been cut back by more than one per cent in early trading this week.
But even on this seriously depleted level there is a belief that further downside is on the cards with the likes of Pali International suggesting that its PE of 12/13x looks too heady. And the broker is clearly not alone as Carpetright is one of the most shorted stocks in the sector with a meaty 22 per cent out on loan.
The justification for this bearish view is the continued poor trading at the group, which is feeling the full impact of the downturn in consumer spending and weaker housing market. Its most recent statement showed like-for-like sales had grown by a mere 0.6 per cent for the last final 13 weeks of its 26-week trading period to April 26. What worried most was that this was against weak comparatives last time.
Overall group sales increased by 5.6 per cent for the total 26-weeks with the UK and Ireland increasing by a lesser 3.1 per cent. Trading in these markets was described as tough while its overseas business (encompassing The Netherlands, Belgium and Poland) was a little more buoyant with like-for-like sales in the local currency increasing by 6.8 per cent.
Within these markets Carpetright has opened a total of four stores in the second half to bring its portfolio to 116 outlets compared with 559 in the UK and Ireland. With this continued heavy bias towards the UK and Ireland the weakening consumer background in these key countries remains a worry.
It is not surprising therefore that the company expresses great caution and hopes that its improved back-end infrastructure (involving a new national cutting and distribution centre that replaces four separate sites) will provide it with a buffer against downward pressure in the marketplace.
The company has also completed the integration of the Storeys business and is working on a similar exercise with Carpetworld, which are both businesses that it bought as part of its strategy to grow market share in what remains a highly fragmented part of the retail sector.
A major benefit of adopting such a strategy in a downturn is that there should be some cheap deals to be done as smaller operators find it increasingly difficult to compete in the current tough market. In order to fully benefit from this move Carpetright can probably afford to sit tight and wait for its weaker rivals to really feel the squeeze before it makes another move.
With such as unexciting story to tell and little likelihood that its situation will change for the better in the short-term as the economic squeeze looks to be in its early stages Carpetright fails to stand out from the retail crowd and on that basis has little to commend it to investors.
Tagged as: carpetright
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