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Dignity and Carpetright crash in consumer crunch

Triple whammy of bad news from retail stocks sees shares in Dignity, Carpetright and Bonmarché crash.

 
Dignity and Carpetright crash in consumer crunch
 

Shares in funeral services provider Dignity and carpet retailer Carpetright have lost around half their value as both companies issued profit warnings, in another worrying sign for the health of the UK consumer.

Dignity (DTY) crashed 49% to 977.5p, tumbling to the bottom of the FTSE 250, as it warned 2018 would be substantially below market expectations after it was forced to cut the price of simple funerals by around a quarter.

Shares in the business are down 60% since early November, when boss Mike McCollum warned of increasing competition in the funeral space.

In this morning's statement, Dignity said that over the last 18 months it had 'consistently alerted the investment community as to the increasingly competitive environment in which it operates'.

'Customers are increasingly price-conscious and in an over-supplied industry, are shopping around more,' it said.

Peel Hunt analyst Charles Hall slashed his estimates for the company by 46% on the news, placing his target price under review but keeping his 'hold' rating.

'There is considerable uncertainty over the impact on volumes, mix and consumer reaction,' he said.

'As a result our 46% cut to forecasts is only a stab, not a clear view on the likely outcome.'

On the FTSE Small Cap index, shares in Carpetright (CPRC) were floored, down 42% at 95.4p as the carpet retailer warned on full-year profits, blaming faltering consumer confidence.

'Despite a positive start to our third quarter, we have seen a significant deterioration in UK trading during the important post-Christmas trading period,' said chief executive Wilf Walsh.

'While average transaction values were up year on year, the number of customer transactions since Christmas was sharply down, which we believe is indicative of reduced consumer confidence.'

John Stevenson, analyst at Peel Hunt, cut his rating to 'hold' from 'buy' and placed his target price under review.

'The surprise is twofold; core sales had held up well through the carpet autumn peak and signs of recovery were good at the time of the December interim results,' he said.

'Chief executive Wilf Walsh had also bought stock in early January, which we had taken as a positive flag.'

Adding to the UK retail woes was Alternative Investment Market stock Bonmarché (BONB), down 23% at 97.3p after the clothing retailer reported a 5.5% slump in fourth quarter sales.

'The clothing market became more challenging during this quarter, especially on the high street,' said chief executive Helen Connolly.

The triple whammy of bad news hurt retail stocks on the FTSE 100, which rose 13 points, or 0.2%, to 7,714.

Kingfisher (KGF), owner of the B&Q and Screwfix chains, was down 3.4% at 332p, while clothing retailer Next (NXT) fell 1% to £49.27.

On the FTSE 250, Dixons Carphone (DC) dropped 2.8% to 189.5p while small-cap furniture retailer DFS (DFSD) dropped 3.6% to 198.6p. 

4 comments so far. Why not have your say?

richard tomkin

Jan 19, 2018 at 20:48

How can customers be "increasingly cost conscious" when they are dead ? It's a bit like complaining of "stiff" competition in this sector.

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Alan Selwood

Jan 19, 2018 at 23:44

As with anything else, the price you can charge is closely related to what the market can bear, and the way you relate prices to some sort of comparison value.

If close family members are executors, they are more likely to be lavish with the funeral costs if they are going to get £3 million each, but if they are only in line for £10,000 each, they are highly unlikely to spend £20,000 on a lavish funeral!

Like house prices, there is a limit to what people can comfortably afford to consider as 'not too expensive' : psychologically, the price of a funeral costing 4 times weekly income will have some sort of relation to that level of income - paying 2x will feel cheap, but 14x will feel extortionate.

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Greyinvestor

Jan 20, 2018 at 00:06

I think investors in Dignity may also want to examine the company's liabilities arising from the pre-arranged funeral plans it has sold over the past 20 years. Take a look at where this money is invested (The Funeral Trust etc.) and whether it is likely to have kept pace with funeral cost (not price) inflation.

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Mark Stringer

Jan 20, 2018 at 10:04

"Dignity" have a nice little sideline where they have absorbed local funeral directors who retain their name above the shop. They ask in amongst their questions in a very surreptitous way whether you can be contacted for ancillary services. One of these is a probate "service".

They slipped a few tick box responses by my wife when she arranged her mothers funeral a few years back.

The day of the funeral we received a call from someone with an American accent trying to flog us "help" with probate!

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