Carpetright profit warning fuels double-dip fears

Carpetright sent shivers down the spine of retail DIY and home product chains yesterday with a profits warning that wiped 11 per cent off its market value.

The UK's biggest floor covering retailer blamed the snow and icy weather after Christmas, but warned that its underlying sales had not recovered as expected after the snow melted.

The profits downgrade gave investors the jitters and prompted a sell-off in shares in retailers, with stocks such as Topps Tiles, B&Q's owner Kingfisher and Home Retail Group, which runs Homebase, falling.

Carpetright is seen as a bellwether of consumer spending and its warning will heighten fears of a double-dip recession. Lord Harris of Peckham, the chairman and chief executive of Carpetright, has said on numerous occasions that it is typically "first in, first out" of a recession.

This seemed to be borne out by the 3.9 per cent uplift in Carpetright's underlying UK sales for the 26 weeks to 31 October – its strongest first-half performance since 2004. But yesterday the market leader said this growth had slowed to 1.4 per cent in the seven weeks to 20 March.

The slowdown came despite the problems at its rival Allied Carpets, which emerged out of administration last summer with a radically reduced number of stores.

Lord Harris said: "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. It is now clear that recent like-for-like sales growth, while remaining positive, has not returned to pre-Christmas levels and the recovery from weak trading in January has not been as significant as expected."

As a result, Carpetright said that group profits would fall below market expectations of £37m, although they will be significantly ahead of last year. Shares in Carpetright tumbled by 101p to 825p yesterday.

Neil Page, the retailer's finance director, said that consumer "uncertainty" over further tax rises after the forthcoming general election was leading consumers to "defer" spending on home improvement projects. He said: "This leads to a genuine austerity fear among consumers because there is no good news coming through. People are deferring a little bit of their discretionary spending."

But he warned of a wider slowdown on the high street and expects conditions to remain challenging for the rest of 2010.

Mr Page said: "If you take the weather out of it, the underlying growth is a bit lower than it was in the autumn and there is a genuine shift in consumer spending in it." He added: "Things will remain tight throughout the remainder of this calendar year."

Carpetright's underlying sales in the rest of Europe grew by 1.6 per cent over the seven-week period.