Carpetright joins the slim ranks of retailers who’ve had straight-up sales growth during the winter quarter, but it hasn’t managed to achieve this without help from margin-eroding promos and an interest-free credit offer.
Still, it looks like the dicey patch last year, containing several profit warnings, has been laid to rest, with the UK operations that contributed to weak demand at the time showing more than a sign of turning around in Q3, UK same-store sales rose 7.5%.
Even European ops, including the Netherlands, which also showed markedly poor demand last year, managed to eke out a 1.7% underlying increase.
Gross margin guidance for Europe is a strong positive under the circumstances with a 250 basis-point expansion expected by the end of the current year.
For the UK, the effect of discounts will show, with margins expected to thin by 100-150bp.
All in all, today’s figures leave Carpetright on track to achieve our target of £44m-£45m in sales by year end in June, For a firm that was on the ropes this time a year ago, that’s no mean feat.
Still, there are signs parts of the market are growing weary (perhaps bored) of the Carpetright story, which to be frank is after all a comeback from a very low base of expectations.
(We note data suggest short interest in this stock is currently higher-than-average. The percentage of the stock on loan may rise by the end of this week to above 5%, judging by the FCA’s figures up to last Friday).
This remains a low-growth low-yielding, conventional, big-ticket retailer (if we strip-out the recovery curve priced into the forward price/earnings ratio).
At the very least, as free cash flow rebounds (it shouldn’t fall off a cliff this year after hitting 11p/share last year) there will be calls for better pay-outs, perhaps via a buyback or special dividend—absent any convincing growth initiatives.
These factors help to explain why the stock is looking like it may need a rest after its 40% recovery in 3 months. Still, the upside could last till about 474p, where the 200-week moving average comes in. Selling may win the balance of trading from that point.
News Source Mr Ken Odeluga, Market Analyst, Cityindex – Website Link