Carpetright boss to stay on to 'help' successor deal with widening losses

Carpetright founder Lord Harris has performed a U-turn about stepping down from the loss-making company and plans to remain on the board to advise incoming chief executive Wilf Walsh.

"Wilf will be left to run the business but during the learning phase I will be there to help," said Harris who is moving out of the retailer's headquarters in Purfleet, Essex to a new base in Orpington. "He is going to be in head office and I'll be in my office and he can call me when he wants."

Now 72, Harris was recalled last year to run the business he founded in 1988 after the then chief executive Darren Shapland quit suddenly. The appointment of Walsh, the former managing director of the bookmaker Coral follows several difficult years for the company as sales and profits collapsed during the financial crisis.

Almost £12m of exceptionals pulled the company deeper into the red in the year to 26 April with a pre-tax loss of £7.2m on sales of £447.7m. The write-offs included £6.6m relating to "onerous" lease provisions on closed UK stores it has been unable to dispose of. On an underlying basis pre-tax profits had more than halved to £4.6m from £9.7m a year earlier.

The slump in financial performance was caused by a £3.8m loss at Carpetright's non-UK business, which is mainly in the Netherlands. Carpetright's expansion into the Dutch market in 2002 turned sour after one of Europe's biggest property bubbles burst. But business was also lacklustre in the UK, where revenue dropped 1.5% and like-for-like sales fell 0.2%.

The figures were in line with City expectations following three profit warnings in the past year. Carpetright's shares, which have fallen about 20% since early April, closed down 4.75p to 494.25p.

With Walsh due to join the company from next month, Harris had said last month that he would leave the board at September's annual meeting and work as a consultant to advise Walsh. He now plans to stay on as chairman after September until a replacement arrives and may then remain on the board as a non-executive director on the strength of his family's 20% stake in the company. Other shareholders are understood to be supportive of Harris's decision to stay.

Harris said there would "definitely" be a new chairman as he had other business interests to pursue including his chain of school academies and part ownership of top show-jumping horse Ursula XII.

Harris said the new arrangement was better than the old one as he would still be entitled to attend board meetings, which many investors with holdings of a similar size would seek.

Carpetright's business is closely tied to the property market because households buy new flooring when they move or plan to move house. Britain's property market surged during the company's financial year but little benefit flowed through to Carpetright sales.

Harris said the time lag before the improving UK property market feeds through to sales had increased because tighter regulation and taxes had eaten into homebuyers' disposable income. "They have to pay a larger deposit than they used to and they have got stamp duties which gives them less money," he said. As a result, buyers are waiting to fit new carpet and flooring whereas before it was one of the first things they did, he said.

Earlier this year Carpetright was forced to adjust its pricing policies after the Office of Fair Trading criticised it and other floor and furniture sellers for advertising reductions that were not genuine. Harris said the business had not been affected by the OFT decision. "We are acting well within the rules now," contined Harris. "People get genuine prices with genuine discounts and we are doing that. We worked within the law and they wanted to change the law. We have seen no difference."

Harris has been revamping stores but Freddie George, an analyst at Cantor Fitzgerald, said Walsh would have to take more radical action to overhaul Carpetright. "His priority will be to update and modernise the current concept. This is likely to involve significant capital expenditure and restructuring costs. The current concept, in our view, is too focused on price and not aspirational enough for mainstream customer needs."