United Carpets warns positive results will be hard to replicate

In the year to March 31, the AIM-listed retailer’s like-for-like sales were up 1% but in the 17 weeks since the year-end they slipped 2.6% in the carpets category and slumped 25.5% in beds.

The retailer said it was affected by “the World Cup, the General Election and subsequent Budget, which together made for an exceptionally tough trading period”.

United Carpets’ pre-tax profits soared 84.5% to £1.1m in the year, when profit before tax and exceptional items jumped 7.3% to £1.5m. Revenue rose 2.5% to £27.5m. Network sales, which include the retailer’s franchised stores, increased 7.4% to £69.9m

Freddie George, analyst for house broker Seymour Pierce, noted the final results were ahead of forecasts. But he said: “Following this update we are reducing our 2010/11 pre-tax profits from £1.6m to a similar level to the previous year’s at £1.5m to reflect a more difficult trading outlook.”

On Tuesday the British Retail Consortium-KPMG Retail Sales Monitor for July showed that furniture and floor coverings dropped back “well below their year-earlier level” last month. It said “consumer caution hit big-ticket items”.

United Carpets reported that trading “started modestly” but improved “strongly” during the first quarter before being “adversely affected by the weather conditions in the fourth quarter”.

Gross margin improved from 64% to 66.2% reflecting the “increased proportion of franchise-related income to total revenue”.

The retailer said it “continued to differentiate the United Carpets offer through a series of advertising campaigns” in the full-year period.

The retailer, which has 82 stores in northern and central England, opened two shops in the period.

Chief executive Paul Eyre said: “Sales of flooring and beds remained stable during the period, which resulted in a good performance for the year.

“However, the market environment remains challenging, with little improvement in volume across the housing market and an understandable sense of caution among consumers given the continuing economic uncertainty in the UK.”

George added: “We continue to believe the stock is significantly undervalued and reiterate our buy recommendation. It also has the support of a strong balance sheet with a cash balance forecast in excess of £2m and is undervalued relative to peer Carpetright.”