Feltex 'talking nonsense' over slump in sales

Sam Magill

Feltex's claim that a "surprise" fall-off in Australian carpet sales and tough times across the Tasman fuelled its latest profit downgrade has been ridiculed by Australia's largest carpet retailer.

Jim Smith, managing director of Carpet Call, which is 50 per cent owned by Feltex, said: "It's just nonsense.

"It's no surprise to anyone the market's in the position it's in now because everyone would have known six to nine months ago the market was heading in this direction and imports would get stronger. The volume of housing approvals were down and unit developments were down.

"There's no surprises in any of that at all. None whatsoever."

Feltex attributed Monday's profit downgrade - its second in 2 1/2 months - to a sharp slowdown in Australia's residential carpet market and a severe drop in consumer confidence.

Chairman Tim Saunders said he came to realise the full extent of the profit warning late last week when he got its latest set of forecasts.

But Smith, speaking from Melbourne yesterday, said the downturn had been flagged in building approval figures long before a slowing started to show and few in the industry were surprised.

"Everyone knew on January 1 the free trade agreement with America was coming in and the duty was going to go from 15 per cent to 8 per cent. Everybody knows the Australian dollar is relatively strong. None of these things are a surprise. They're true, but they're not a surprise.

"It's ludicrous that anyone would be surprised this was going to happen."

After Monday's downgrade, Feltex - New Zealand's largest carpet manufacturer - is now expecting a full year net profit of between $11.5 million and $12 million, down from guidance of $15 million to $16 million given in April and $12.4 million below the prospectus profit forecast given in its prospectus when floated last June.

It also cancelled the final dividend, announced a full review of its operations and said chief executive Sam Magill would quit the company at the end of the year.

Feltex shares were worth 44c last night, a fall of 3c on the day, after plummeting 26c after Monday's downgrade. They're a long way from the float price of $1.70.

The company is now valued at $70 million compared with $250 million at the float.

Carpet Call has 40 stores in Australia, where Feltex makes 75 per cent of its revenue. Smith owns the other half and has control of the firm.

"And thank God I do," he said.

Smith said Carpet Call's sales for Feltex carpets had dropped dramatically, and the retailer had moved its support to other local manufacturers and imported brands for competitive reasons.

A local carpet specifier said Feltex's problem was it was making "me-too" carpets.

"They used to be market leaders but they have lost the plot."

Exciting things were happening with the colours and textures of carpets in Europe and the US, and these were making imported carpet more popular.

"Feltex hasn't recognised the world has moved on and they have not caught up," the specifier said.

Meanwhile, the Shareholders' Association is confident Monday's events will further prompt the Securities Commission to investigate whether Feltex investors were appropriately informed about the ailing carpet-maker's prospectus.