Carpetright issues warn distinction warning

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Carpetright delivered an unexpected shock to the City yesterday with a profit warning that raised fears about the recovery in consumer spending.

Britains biggest floor coverings retailer, which has a reputation for being ahead of the business cycle, had 68 million wiped off its market value after it said that full-year profits would be below market expectations because spending had failed to rise after Januarys snowfall.

Lord Harris of Peckham, its chairman and chief executive, said: "As we reported in our last trading statement, poor weather in the UK after Christmas severely affected the final weeks" trading in our third quarter. Nevertheless, based on previous experience, we expected to recover some of this lost trade in the remaining weeks of the year."

Neil Page, finance director, said: When we reported [in the autumn], it looked like we had come into recovery and our expectation was that there was nothing to suggest that it wouldnt continue ... but it looks like the underlying level of demand from the consumer is significantly lower than it was pre-Christmas.

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Carpetright had expected the rate of sales growth to return to the double-digit levels before Christmas. Nevertheless, it said that profits would still be considerably ahead of last year, when it made a pre-tax profit of 16.7 million. Shares in the company yesterday fell 101p, or 11 per cent, to 825p.

Carpetrights warning was significant because Lord Harris of Streatham, its executive chairman and founder, was among the first last year to signal renewed optimism about the consumer economy.

Like-for-like sales in Britain rose by 1.4 per cent in the seven weeks to March 20, or 6.5 per cent in total, including new stores. Sales increased at its Belgian and Dutch businesses. Overall, sales were up 4.9 per cent, compared with 9 per cent for the half-year to October 31. The British performance was particularly weak because it took into account the extra spending available after the failure of Allied Carpets, a rival, which has bounced back in a pre-pack administration, but with only 50 stores.

Andrew Wade, retail analyst at Numis, said: Carpetright is still a very high-quality operation but it seems that, reflective of the wider UK economy, it is going to take longer for the business to climb out of this recession than we had expected.