Carpetright has issued its first performance results since its CVA process, covering the 26 weeks ended 27th October 2018.
It reveals that trading was heavily impacted by the disruption caused by the restructuring announcements – a total of 65 underperforming stores were closed, to end the period on 345 trading stores (translating to a YoY space decline of -17.0%).
LFL sales were down -12.7%, but improved towards the end of the half as challenges around stock availability and the negative brand sentiment associated with the restructuring and refinancing began to subside. Gross profit decreased by £25.9m to £83.7m.
Yet its total UK cost base decreased by -15.2%, principally driven by the store closures and store occupancy costs – the average store lease length has been reduced to 3.5 years, with 52% having an option to break within two years, giving Carpetright further flexibility to adapt to changes in the retail environment.
The combination of these factors resulted in an underlying EBITDA loss of £2.1m.
Carpetright also reports further investment in digital technology for implementation in the spring, and growth in its hard flooring category. The retailer has paused its refurbishment programme, which will resume in H2.
This performance leaves Carpetright on track to deliver the planned £19m annualised cash savings from its restructuring programme, the retailer reports. Chief Executive Wilf Walsh says: “This is a transitional year for Carpetright as we work through our restructuring plan. We remain on schedule and are confident that this activity is already starting to yield benefits. This is the first stage in returning the group to sustainable long-term profitability.”
"It would be wrong to blame the media for reporting the facts that we issued two profit warnings and implemented a CVA," continues Wilf. "However, we must recognise that negative headlines did impact on both our colleagues’ and customers’ confidence in our brand. Unlike other retailers going through a similar process, you don’t generally pick a product up from the shelves in our stores - we ask customers to leave a deposit ahead of delivery and this clearly became a significant issue for some during this period.
"This uncertainty can be seen in our UK performance, with LFL sales being down -16.8% in Q1. The rate of decline reduced to -8.9% in Q2 as the negative brand impact reduced and we increased our investment in advertising with a clear message, 'carpetright.for life' – brand perception has improved since the campaign launch, and we remain the clear market leader.
"Margins were under pressure during the period, with reduced footfall and an increasingly competitive marketplace. This led us to increase in the size of promotional discounts as we sought to maintain sales volumes.
"As previously announced, a withdrawal of credit insurance by certain providers caused us some stock problems early in the period. However, I am pleased to report that our maintained position as market leader is now ensuring we are moving closer to the terms we enjoyed with the majority of our suppliers prior to the implementation of the CVA."
Carpetright's LFL sales across its European business increased by +0.5%.