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Carpetright floored by sluggish housing market

LONDON - Carpetright, Britain¡¯s biggest floor coverings retailer, said the outlook for 2011 looked poor as sluggish mortgage approvals meant housing market activity was unlikely to pick up any time soon.

British mortgage approvals, which are key lead indicator for Carpetright, fell to 30,766 in October, their lowest monthly level in more than one and a half years. ¨ûID:nLDE6AM0Q3

“The availability of mortgages, particularly for first time buyers, is significantly different from what it was three years ago (with people) needing a much higher level of deposit. I think that’s having a knock-on impact through the rest of the housing chain at the moment,” Carpetright finance director Neil Page told reporters on Tuesday.

He was speaking after the firm posted a 28 percent fall in first-half profit.

Page is also concerned that Britain’s prolonged cold snap could hit third-quarter trade.

“If we have Arctic conditions for six to 10 weeks... I’m sure it will impact consumer demand. But it won’t just impact Carpetright it will impact the whole of retail,” he said.

But he noted that Carpetright, which runs 584 stores in the UK and Ireland and 118 in The Netherlands and Belgium, was continuing to win market share from smaller rivals, and said he has high hopes for the firm’s fast growing beds business, which will be in 200 stores by Christmas.

Aside from the weather Britain’s retailers are worried higher taxes and public spending cuts aimed at reducing record government debt will hit consumer demand in the months ahead.

Shares in Carpetright were down 4.3 percent at 761.5 pence at 1043 GMT, valuing the business at about 525 million pounds ($833.2 million), with the profit fall and cautious outlook offsetting news late Monday that Bill Gates, the founder of Microsoft and the richest person in the United States, had increased his stake to 6 percent.

While Page welcomed Gates upping his holding, Nick Bubb, analyst at Arden Partners said it showed “some people have more money than sense”.

“Given the moribund state of the housing market and the close correlation between Carpetright’s monthly like-for-like sales and monthly mortgage approvals, this is the wrong time of the cycle to be increasing exposure to a mass market furnishings retailer,” he said, repeating his “sell” stance on the stock.

Prior to Tuesday’s update the stock had lost 14 percent of its value over the last six months, underperforming an 8 percent rise in the UK general retail sector.

The firm, made an underlying pretax profit of 10.0 million pounds in the 26 weeks to Oct. 30, down from 13.9 million in the same period last year.

Group revenue fell 4 percent to 248 million pounds, with sales at stores open over a year down 6.1 percent in the UK and Ireland and down 2.9 percent in The Netherlands and Belgium.

“The (pretax profit) consensus at the moment is between 26 and 27 million pounds for the full year. We think we’re broadly on track for that,” added Page.

The firm, which ended the period with net debt of 58.5 million pounds, maintained its interim dividend of 8.0 pence. ($1=.6301 pounds)