MFI shares crash after slow trade warning

Retail concerns: Tough time for furniture chain n Buyers are sought for high street straggler

Shares in MFI Furniture crashed 40.5p to 156.5p yesterday, wiping pounds 239m off the market value of the UK's biggest furniture retailer, after it warned of a sharp slowdown in second-half trading. The news, covering MFI's crucial new year sale period, underlines the still- fragile state of the housing market, which tends to lead sales of the sort of fitted kitchens, bedrooms and housewares sold by the group.

Similar retailers fell in sympathy, with Carpetright sliding 20.5p to 604p and DFS, the furniture group, wilting 14.5p to 595p.

In a scheduled trading update, MFI revealed that underlying sales growth in the UK had almost halved from 13.5 per cent to just 7.1 per cent in the 16 weeks of the second half to date, including the 10-week sale period to 2 March when it traditionally achieves around 30 per cent of its annual turnover.

John Randall, chief executive, said: "In September, I made it clear we had not seen any improvement in the housing market and I don't see any reason to change that view. I don't think it's anything like enough to talk up a boom and I don't think it is anything like enough to sustain the sort of sales increases we saw in the first half."

But he admitted he was at a loss to explain why trading had decelerated so much across the year. In December, the group announced a 62 per cent jump in profits to pounds 32.7m for the first half and most analysts had been factoring in a continuation of the first-half sales trend on the back of improvements in the housing market. Yesterday full-year forecasts tumbled from as high as pounds 90m to around pounds 70m to pounds 80m for the current year and from pounds 120m to between pounds 90m and pounds 100m for 1997-98.

Tony Shiret of Barclays de Zoete Wedd, a long-time bear of the shares, said yesterday's news "emphasised the volatility and unpredictability of MFI's performance". He said he had always been a seller because of the cyclicality of the group.

"I always thought this was going to be its peak year, or maybe next year. There is probably going to be some sort of tightening of policy towards the consumer next year by the new government." This was likely to outweigh any revival in the housing market, building society windfalls and the effects of the group's new Homeworks format, he suggested.

MFI said sales through Homeworks, designed to give an airier feel to stores selling a wider range of household goods, were growing in double- digit percentages, while those in unconverted stores were going backwards at a "modest" percentage rate. Eighty-one of the group's 185 outlets are now converted to Homeworks and Mr Randall said they would do the rest over the next two years.

He dismissed fears that the growth differential between the two chains could be widened in the autumn when the group plans to switch the emphasis of its national advertising from the MFI to the Homeworks brand.

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