Carpetright has been busy laying down the foundation to a good recovery; the company has made several key changes to how it operates and its fortune and share price is turning around. As I previously stated, the firm had a series of profit warnings over a couple of years, and that resulted in a change of CEO, and now the company is showing signs that business is on the up.
In April, the full-year net profit guidance was given as £13 million, and analysts were looking for a forecast of £10-£11 million, which compares with last year’s full-year loss of £7.2 million. The old model of having a large store usually located in a business park is on the way out and, as a trial basis, smaller stores will be making an appearance on the high street with samples. The online division has been a big driver behind the turnaround, and in-store samples will complement this.
During the 12-week period up to 18 April, sales at the company’s UK division rose by just over 10%. However the continental Europe business is still lagging, and sales for the region dipped 0.7% during the same time period. Last year the European division registered a loss of £3.8 million, but the company’s CFO Neil Page stated it ‘will be in profit’ this year. It will take time to claw back investor confidence, but the groundwork for the comeback is in place.
The market is anticipating revenue of $461 million and adjusted net income of £9.4 million when Carpetright announces its figures. These forecasts represent a 3% drop in revenue, and a 193% rise in adjusted net income.
Equity analysts are bullish on Carpetright, and out of the six recommendations three are buys, two are holds, and one is a sell. The average price target is £5.62, which is marginally lower than the current price. Investment banks may not seem overly bullish on Carpetright, but the rating breakdown in December was one buy, two holds and three sells — that is a big change in outlook.
The share price has been rising since December, and the stock is running into resistance at £5.75, and if that mark is cleared the £6 will be in sight. Any pullback should find support in the £5.45, and if that level is punctured then the support at £5.20 will brought into play.