* Sees 2011 profit below market expectations
* Q3 UK/Ireland underlying sales down 7.7 percent
* Sees price rises of at least 15 percent in 2011 vs 2010
* Shares down 5.4 percent
(Adds detail, CEO comment, updates shares)
By James Davey
LONDON, Feb 1 (Reuters) - Carpetright, Britain's biggest floor coverings retailer, warned on profits after a third-quarter sales slump, showing how a weak housing market, tax hikes and government cuts have hit consumer confidence.
The retailer, which trades from 694 stores in Britain, Ireland, The Netherlands and Belgium, also said on Tuesday customers would face double-digit price rises this year due to the soaring cost of raw materials.
"It is the first time in 22 years Carpetright's been going that we have got really big inflation," said founder, Chairman and Chief Executive Philip Harris, highlighting wool price rises of 18-22 percent over the past five months and a doubling in the price of polypropylene over the last 6-8 months.
"Carpet prices will be up in 2011 over 2010 by at least 15 percent," he said.
Harris said the company had expected trading in January to be boosted by the impact of snow in the same period a year ago. But the anticipated increase did not materialise.
"The main thing is there are less customers about ... This causes us to remain cautious about the outlook for the remainder of the financial year," he said.
He now expected profit for the year to end-April to be below 2009-10's 28.2 million pounds ($45 million) and below the current range of market expectations of 23-28 million.
Carpetright shares, 6 percent of which are owned by Bill Gates, America's richest man, were down 5.4 percent at 688.5 pence at 1014 GMT, valuing the business at 468 million pounds.
"In a tough carpet market, our suspicion is that Carpetright is losing market share," said Arden Partners analyst Nick Bubb.
CARPETS NOT FLYING
Carpetright's fortunes are closely linked to mortgage approvals and the state of the housing market.
A survey from mortgage lender Nationwide showed on Tuesday that British house prices were continuing the moderate downward trend in place since the middle of 2010.
Official government data showed mortgage approvals for house purchases fell in December to their lowest since March 2009.
Carpetright said sales at UK and Ireland stores open over a year fell 7.7 percent in the 13 weeks to Jan. 29, a slowdown from a first half decline of 6.1 percent.
The company said it expected UK/Ireland's full year margin to be up 50 basis points on last year, in line with previous guidance and reflecting a tight control of costs.
Analysts are wary about retailers' prospects in 2011, particularly after much weaker than expected economic growth data was reported last week.
They warn consumer demand will be subdued in the first half of 2011 due to the government's 81 billion pounds of cuts, as well as tax rises, a slowing housing market and hikes in transport and fuel costs.
The Carpetright data suggests that British consumers are becoming less prepared to spend as higher inflation, fueled by January's VAT hike from 17.5 percent to 20.0 percent and muted earnings growth bites into their purchasing power.
Carpetright said like-for-like sales at stores in The Netherlands and Belgium fell 5.0 percent, having been down 2.9 percent in the first half. (Editing by Sarah Young and Jane Merriman) ($1 = 0.6221 pound)