The Investment Column: Carpetright

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The Independent Online
LORD HARRIS, chairman and chief executive of Carpetright, has been in the carpet trade for 50 years. So when the company says it is going to focus on organic growth, investors can be confident it is in safe hands. Cynics may say the group has already exhausted the customary shortcuts to earnings growth, after acquiring 29 sites from Allied Carpets and buying back shares throughout last year. But Carpetright appears to have genuine strengths in carpet retailing.

Last year was exceptionally volatile for the group. The first three months were weak, the next seven were better, and the last two were shockingly bad. Despite that, Carpetright grew like-for-like sales by 3 per cent. But pre-tax profits fell 20 per cent to pounds 23.5m, impacted mainly by some poorly performing Allied Carpets stores and the cost of new openings.

Carpetright is at a loss to explain the changing market, though one factor is bobbing interest rates which have a knock-on effect on its business six months later. The group's business, located mainly in out-of-town sites, is also vulnerable to weekly dips in consumer confidence should shoppers decide to stay at home.

Although John Kitching, the managing director, is looking to lift the number of stores in the UK from 333 at present to 350 - around 10 openings are planned this year - he is focusing on lifting sales per head in the stores and growing margins. The group's resilient performance this year, demonstrated by its strong cashflow and the absence of any serious competition at the moment from Allied Carpets, suggest the management is right to concentrate its time in this way.

Analysts expect pre-tax profits of pounds 30m and earnings of 27.1p this year, putting the shares, which closed up 12p yesterday at 386p, on a forward p/e of 14. That's in line with its retail peers and the shares are good value.