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Earnings

Main IKEA retailer's full-year profits drop, eyes recovery this year

STOCKHOLM (Reuters) - IKEA stores owner Ingka Group saw a 29% fall in operating profit in the year to end-August due to the COVID-19 pandemic, but predicts a recovery this year as temporarily housebound consumers spend more on home improvements.

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The world’s biggest furniture retailer, which is also a big shopping malls owner, said on Tuesday its fiscal full-year operating profit totalled 1.43 billion euros ($1.70 billion).

Chief Financial Officer Juvencio Maeztu told Reuters a high pace of investment despite slightly lower sales had weighed on earnings, as had temporary measures to support employees, rent waivers to mall tenants and financing to cash-strapped service suppliers.

“Taking the store closures, the support to co-workers, society, community, suppliers and tenants, and the fact we didn’t stop investments in transformation and sustainability... this is a very solid result,” he said in an interview.

“Overall, if you take out the COVID-19 impact we see good performance across all markets.”

Retail sales at IKEA’s 378 stores and online were down 4% to 35.2 billion euros, while Ingka Group’s total sales, which also include rental income at its 45 malls, were down 5% to 37.4 billion.

IKEA is investing heavily in a shift towards smaller inner-city stores with more digital and other services as it adapts to changing shopper habits.

Its traditional out-of-town locations will increasingly double as distribution centres for online purchases.

Capital expenditure totalled 2.1 billion euros in the year, slightly down from the a year earlier, partly due to the pandemic slowing mall construction projects.

Maeztu said investment levels would be roughly the same in the current financial year. Besides more money spent on digital transformation, focus will be on improving fulfilment capacities and on inner-city store expansion.

After three out of four IKEA stores closed for an average of seven weeks during lockdowns this spring, sales recovered quickly as the pandemic caused many people to spend more time in, and more money on, their homes.

Maeztu said the new fiscal year had started well, and that while the outlook was uncertain due to the pandemic his “guesstimate” was that sales and profits would improve this year.

Ingka Group is the biggest of 12 franchisees to brand owner Inter IKEA, which is in charge of supply.

Maeztu said that as all furniture suppliers were fully back up and running again, Ingka Group’s stocks in main market Europe were now almost fully replenished, while it would take a little longer to catch up in the United States.

($1 = 0.8423 euros)

Reporting by Anna Ringstrom; Editing by Jan Harvey

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