Carpetright’s turnaround is making good progress but it has a long road ahead of itself in order to put nine profit warnings over a two-year period behind it. Wilfred Walsh was appointed as CEO in July after the sudden departure of Darren Shapland.
The company was founded by Lord Harris who decided to put off his retirement during the summer to bring a sense of leadership to the company due to the change in senior management.
Lord Harris stepped down as chairman at the end of October after Bob Ivell joined the firm as its non-executive chairman. It seems to me that Lord Harris is handing over the reins for the final time, and he will continue to have financial interest in the company as his family still holds a 14% stake in the firm.
Mr Walsh has hit the ground running since taking the top job, and his attention has been on re-establishing the company as a low-cost provider of carpets and beds. Working on improved rates from suppliers and trimming costs has been the core of Mr Walsh’s job, and his goals are to increase profit margin and revenue.
The second-quarter trading update in October revealed a 5.6% increase in sales which shows us that Mr Walsh’s tactics are already working. Revenue in continental Europe declined by 0.5% over the same period but the deteriorating eurozone economy will make it more difficult to turnaround the European division of the company. A large portion of Carpetright’s continental revenue comes from Belgium and the Netherlands, which have relatively high consumer confidence compared with southern Europe.
The company’s second quarter figures many not have been amazing but they were a major improvement on the full-year figures, in which revenue declined by 2% and underlying pre-tax profits fell by 52%. Carpetright has already modernised over half its UK stores and its website activity is showing double digit growth. No doubt Mr Walsh will look to build on this.
Carpetright will report its first-half figures on Monday 15 December, and traders are expecting revenue and net adjusted income of £229 million and £3.1 million respectively. The company will reveal its full-year numbers in June 2015, and the market is expecting revenue of £458 million and net adjusted income of £7 million. These forecasts represent a 2.4% increase in revenue and a 118% jump in net adjusted income.
Equity analysts are bearish on the stock, and out of the six recommendations, one is a buy, two are holds and three are sells. The average target price is 3.5% below the current price.
A massive boost in confidence is needed to turn the share price around but Wilfred Walsh has gotten off to a good start. The share price is resting on the 50-day moving average of 318p, and a good set of first-half figures could begin to rebuild faith in the business. The initial target is the recent high of 342p and then traders will look to 400p.