Financial Analysis Carpetright Bills Itself As Europe's Essay

Financial Analysis

Carpetright bills itself as Europe's "leading specialist carpet and floor coverings retailer." The company earns most of its revenue in the United Kingdom (80.1%) with the remainder coming from operations in Ireland, Belgium and the Netherlands. The group opened its first store in 1988 and now has 632 stores and over 3300 employees. This report is going to be a comprehensive analysis of Carpetright's financial situation.

Five Year Summary

Yahoo! Finance (2012) provides data for the past four years. Carpetright has seen volatility in its revenues over this period. In fiscal 2007, the company had revenues of £476 million, and this past year revenues were £471.5, so very little change. The company has added nearly 100 stores in that time, so the average sales per store has declined. The company's sales grew in 2008, fell in 2009, recovered in 2010 and then fell again in 2011 with the new recession. The carpet business is correlated with activity in the housing markets and the state of the economy in general. Chairman Lord Harris of Peckham noted in his annual statement that he had expected challenging trading conditions in the past year and the decline in revenues bears that out.

3.2

The company's profit in 2012 was £11 million. This figure is the weakest in the past five years. While Carpetright has remained profitable through the poor economic conditions, it made £46 million in fiscal 2007. 2008 was also a successful year with £43 million in profit, but the difficult 2009-year saw profits drop to their current range for the past three years. The company will be challenged to restore profit margins to the pre-2008 levels once the trading conditions improve.

Year

Operating Profit

Change (%)

Net Profit

Change (%)

2008

£54

£43

2009

£22.3

-58.7%

£11.8

-72.5%

2010

£28.2

+26.5%

£15.8

+33.9%

2011

£21.2

-24.8%

£4.6

-70.9%

2012

£8

-62.3%

£11

+139.1%

3.3

The company earned 16.4p per share in fiscal 2012. This represented an improvement from earning 6.8p per share in fiscal 2011. Earnings were higher in years previous, with EPS at 31.6p per share in 2010, 18.2p in 2009 and 63.5p in 2008. Clearly before the recession, the company was not only earning healthy revenues but earned much better margins, and was able to deliver EPS performance. The same can be said for dividends. The company in 2008 paid a dividend of 52p per share to its shareholders. This declined to 8p, 16p and 8p in the subsequent three years. It did not pay a dividend in fiscal 2012. The struggles that the company has dealt with in the face of a difficult economy have forced it to suspend its dividend, perhaps until overall economic conditions improve.

Income Statement

5.1

Though Carpetright has remained profitable through this challenging time, it has seen its profitability decline overall. The gross margin in fiscal 2012 was 58.5% and in 2011 it was 61.2%, 61.1% in 2010 and 61.2% in 2009. The slight decline last year reflects a decline in pricing power as the company discounted in order to move out inventory. Faced with high operating costs, the operating margin was just 3.8% in 2012. In 2011 it was 2.2%, but in 2010 it was 5.45% and in 2009 it was 4.6%. These figures indicate that Carpetright's costs have increased faster than its revenues. However, it speaks well to the company's financial management that after predicting a difficult 2012 the company cut overhead costs and increased its operating margin. The net margin is…