Consumer caution weakens the furniture retailers

Stock Market Week
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The Independent Online
THE STOCK market is braced for dismal figures from MFI Furniture this week. It has already sent the group's shares tumbling to a new low, responding to an array of warning signals.

Almost every comparable retailer, such as DFS Furniture and Carpetright, has suffered as the windfall spending spree dried up and the chill winds of consumer caution whistled along the nation's high streets.

MFI's contribution to the tide of woe was unnerving, prompting analysts to slash their profit forecasts. A particularly bleak trading update indicated that in the three weeks after Boxing Day sales went well, then fell away alarmingly.

The group's profits record since it floated six years ago is uninspiring. And its management is thought to have come under institutional pressure, with talk at the time of the trading statement that chairman Derek Hunt was summoned to explain the dismal display to major City shareholders.

Certainly they cannot be relaxed over MFI's performance and unless they are satisfied with the strategy outlined this week they are likely to press for management changes.

It is ironic that MFI's dismal figures will appear just a few days after its former parent, the Asda superstores chain, produced profits in excess of market hopes.

MFI, carved out of Asda in 1989, was floated at 115p a share. The price has touched 205p but closed at 65p on Friday.

John Richards at investment house BT Alex. Brown was looking for profits of pounds 80m, which would have represented a pounds 9.7m advance, before the trading update prompted a rethink. He is now shooting for pounds 60m.

Naturally MFI's difficulties have prompted take-over rumours. There have been suggestions that predators will take advantage of the poor share price and mount a bid. But depressed shares often provide ammunition for a good old-fashioned ramp. Ikea, the Scandinavian retailer, has been mentioned as a possible bidder; so has Kingfisher.

Mr Hunt, a former policeman, has introduced a strategy which includes developing the Howden's joinery side and the French operations as well as bringing in a national distribution network.

Says Mr Richards: "With confidence in management already badly shaken, the market will want reassurance that the new strategy can be implemented successfully."

MFI is a constituent of the mid cap index which has endured its worst run for four years. It fell for 11 consecutive sessions, slumping 460.2 points from its 5,966.6 peak. Lack of liquidity in second-line stocks was blamed. The suggestion was that some investors, satisfied with the heady run the mid caps had enjoyed this year, decided to take some profits - and found it was much more difficult to sell than buy some stocks.

There was a snowball effect and the market's love affair with second- and, of course, third-liners could be over, at least for a time.

Although the mid cap decline has been severe, Footsie has not fared too well during the 11 days, going from 6,019.8 to 5,804.9. Strong sterling, which would have a particularly bruising impact on many mid cap companies, the Asian crisis and the threat of higher interest rates have tended to worry the market, pointing to an unsettled summer.

General Electric Co. is the heavyweight star of this week's reporting schedule. The electronic giant, going through a dramatic reshaping under new chairman Lord Simpson, should offer year's profits around pounds 1.05bn, up some 4 per cent.

The Simpson strategy is to focus on fully owned operations rather than joint ventures. Last week GEC agreed to buy out the outstanding 40 per cent of telecoms maker GPT from the German group Siemens for pounds 700m. Other major deals have been the flotation of Alstom, the heavy engineer where it formerly shared ownership with Alcatel of France, and the pounds 800m Tracor acquisition.

The rest of the foreshadowed results are on the market's under card. Greene King, one of the first regional brewers to acknowledge the pubs shake-up, should produce year's profits of pounds 44m against pounds 36.7m.

Many regionals, relying on traditional ales and stouts and their run- of-the-mill pub estates, have found the going tough as the big brewers and new-style pub companies have encroached on their territory.

Greene King, famed for its Abbot bitter, bravely splashed out pounds 197.5m on The Magic Pub Co, giving it a powerful presence in the branded pub market. It has also been quick to buy properties unloaded by the major brewers.

Marston Thompson & Evershed, the Pedigree bitter group, also went pub shopping, paying a fancy pounds 20m for a little chain of trendy outlets called Pitcher & Piano.

It found the task of rolling out the P&P concept much more tortuous than expected but the chain should now be making more confident returns. New chief executive Nick Letchet (ex-Bass) has not yet had time to make his presence felt. Only a modest 3- per-cent profits advance is expected to pounds 30.2m.

HP Bulmer, the cider maker, keeps up the drinks flow but with a sobering message. Profits are likely to have fallen from pounds 29.3m to pounds 22.5m as cider has gone out of fashion with the trendy lines aimed at younger drinkers losing much of their appeal.

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