The move by floor coverings retailer Carpetright into selling beds has proved less than successful so far, and along with weakness in its European operations has prompted a profits warning.
The level of bed sales in the UK has been below forecast in 2012 while sales in Europe have been soft, and the group now expects the full year underlying pre-tax profit will be in the range of £3m-£4m. The market had pencilled in a figure of £7m for the year to end of April.
Group sales in the 11 weeks to April 14th were down 4.2% on the corresponding period of 2011, and marginally better than the 4.3% decline seen in the first 50 weeks of the financial year to date.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The UK stores have perked up of late. Sales in the 11 week period were down 3.2% year-on-year, versus a 5.0% decline in the 50 week period. Like-for-like (LFL) sales at the UK stores are up 1.4% in the 11 week period but down 1.1% year-on-year in the financial year to date.
The 32 UK stores refurbished to date continue to outperform the core estate and further refinements are being made to the new format ahead of a roll-out.
"We are encouraged to see the UK floor coverings business return to like-for-like sales growth and are cautiously optimistic that this trend will continue in to the new financial year," said Lord Harris of Peckham, the Chairman and Chief Executive of Carpetright.
Following the launch of the revised beds range in early 2012, bed sales grew marginally year on year in the fourth quarter with an improved margin of more than seven percentage points, but sales were less than management had expected.
The miserable performance of the European stores has been exacerbated by unfavourable foreign exchange movements. In sterling terms, sales in Europe in the 11 weeks to April 14th were down 8.0% year-on-year (-1.1% over 50 weeks), while in local currency were down 4.7% (-2.7%). LFL sales in local currency were down 4.4% over the 11 week period and down 2.1% over the 50 week period.
Footfall in the stores in the Netherlands and Belgium fell as weakening consumer confidence took its toll, but the business in the Republic of Ireland continues to bounce back.
As a result of actions taken in the UK, the second half (November - April, inclusive) gross margin is expected to be around 2.2 percentage points below that achieved in the same period of the prior year, and the full year cost reduction is now expected to be £7m, both elements being an improvement on previous guidance.
The group's year end net debt will be below £45m (2011: £65.7m) as expected.
JH
'We face a £6m inheritance tax bill under Reeves's changes – it's sheer terror'
Millions of over 50s fear pension investment risk – how should you position your portfolio?
