When Carpetright, Europe’s leading floor covering and bed retailer, announced its first-half numbers at the end of last year, the costs were eye watering.
Losses totalled £11.7m, some 65 stores were closed, and another 11 were set to close in the next few months. But the company also announced that the refurbishment programme for its remaining stores was helping it to return better numbers than expected.
Carpetright share price jump wiped out
In April, the company posted a very positive Q4 update, saying that revenue was moving towards positive territory and that “consumer confidence in the business [had] started to return”. This prompted the Carpetright share price to more than double to 36p, though since then most of those gains have been lost, and the price currently sits around half that level at 18p. This pullback is borne out by the retailer’s less positive but more guarded comment that UK consumer confidence remains challenging.
Little in the way of consumer confidence is likely to have altered in the last three months, as the long-running saga over Brexit rumbles on. But it’s what has been underpinning the last quarter improvement that has undoubtedly been the catalyst for the upturn, namely last year’s creditors’ voluntary agreement (CVA) with its landlords. This resulted in Carpetright agreeing to close some 92 stores, while also cutting rent on those stores that were struggling to turn a profit.
In its April update, the company confirmed the closure of 72 of the 92 identified stores, which should help it meet the target of a £19m annual saving. There will also be the opportunity next year to renegotiate leases on many of its stores, which means there is plenty of scope to further reduce the cost base.
Can Carpetright maintain momentum?
Chief executive officer Wilf Walsh admitted in April’s update that he was “unsure where we’ll land” with respect to the final results, but the recent improvement should have helped lift the general perception in the market around the CVA, which unsurprisingly affected confidence in the firm among suppliers.
The hope appears to be that a slowing housing market will prompt consumers to spend money on improving their homes, as opposed to moving to new ones. That may be the case to a certain degree, but will it have helped the embattled retailer to maintain the momentum gained from its final-quarter performance, and in turn provide another boost to the Carpetright share price?
In April, the company said it expects to move into full profit after tax during the next financial year. Will Mr Walsh and the management team continue to present a more upbeat outlook for the upcoming year as the CVA restructure beds in? Carpetright’s full-year results are released at 7am on Tuesday 25 June.
Update: Read our analysis on the figures and the early impact on Carpetright's share price here.