Retailers' predictions reflect 'twin track' economy as squeezed consumers put off non-essential spending
Halfords and Carpetright have joined the growing club of retailers making downbeat predictions as analysts warned of a "twin track" consumer economy, with only well-heeled shoppers still spending.
The retailers both said their profits would be lower than analysts expected as consumers were delaying non-essential expenditure such as having their car serviced or investing in a new carpet because of rising bills and government cuts.
Halfords chief executive, David Wild, said the retailer's profits would now be up to £3m short of the £127m pencilled in by analysts after it was forced to start discounting to lure shoppers. The car maintenance division was hardest hit, with like-for-like sales tumbling nearly 12% in the 12 weeks to 1 April.
"It's a very uncertain environment," said Wild, who plans to start selling low-cost flat-pack bikes aimed at cash-strapped consumers. "We have to trade the business as hard as we can. When there will be a recovery in consumer spending, it's difficult to call." Halfords shares closed down nearly 6% at 347p.
Carpetright's profit warning was its second in as many months as new floor coverings remained at the bottom of shoppers' lists. Sales of carpets and lino have been weak for some time, not least because of the paralysis in the housing market. The retailer, which is run by its founder, Lord Harris, said profits for the year to 30 April would be about £17m compared with last year's £28m. The shares shed 36.5p to close down more than 5% at 635p.
Rod Whitehead, analyst at Deutsche Bank, said he thought Carpetright's like-for-like sales had been down in the last quarter. On top of the poor housing market, he said its customer profile was "mid to lower mid-market" and they were the ones being squeezed. "There is clear evidence of a twin track economy with upper mid-market consumers spending more freely," he said. "These consumers are more inclined to buy from department stores or independents whereas Carpetright's strength is in cheaper roll stock and polypropylene carpets."
Better than expected results from Marks & Spencer on Wednesday could not outweigh the gloom elsewhere. Household names, from Argos owner Home Retail to Dixons and Mothercare, have all warned on profits in recent weeks and even M&S chief Marc Bolland said the coming year would be "absolutely challenging because commodity pricing is up and we know discretionary spend will be down".
The spate of profit warnings is worrying investors, with other retailers' shares coming under pressure. Clothing and homeware chain Next shed 2% to close down 44p at £20.52 on Thursday while homeware specialists Laura Ashley and Dunelm were also hit.
Nomura analyst Christopher Walker said industry data suggested sales of non-food, non-clothing categories had deteriorated since the two-week January sales bonanza, with John Lewis's weekly updates showing an average 6% decline in its homeware department.
The sector's position is bad news for the chancellor, George Osborne, whose hopes for recovery rest on the private sector, and the Bank of England, which must balance soaring inflation and sluggish growth.
Halfords also said the "tougher" than expected climate would mean the Nationwide Autocentres business, which it bought for £73m last year, would miss its three-year targets. Wild insisted he did not regret the acquisition and was "very positive" about the opportunity for the retailer to cash in on what is a "large and fragmented market".