Land of Leather sales woe leaves retailers sitting uncomfortably
Friday, 2 May 2008
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Land of Leather, the increasingly beleaguered chain of furniture stores, added to the growing sense of gloom in the retail sector yesterday with sales figures showing like-for-like orders down a whopping 32 per cent in the past three months.
The company has already issued one profits warning this year, wiping 47 per cent off its share value in a single day in January with a post-Christmas statement that 2008 profits will be "significantly below" market expectations. Interim results in March confirmed the pessimism, recording profits down to £5.5m, from £5.8m the year before, and like-for-like sales some16 per cent lower.
Land of Leather is having problems because big-ticket purchases such as sofas are being squeezed by both cautious consumer spending, and the banks tightening up on lending.
"Since the announcement of the interim results, market conditions have remained challenging due to the increasing demands on consumers' disposable income and the continuing credit crunch," the company said in statement yesterday. "The third-quarter results show a decline which we estimate is in line with the reduction in the market in that period."
The management said it was focusing on cost cutting as a key route to survival. Actions already taken will save £11m annually, mainly by major reductions in both advertising and discretionary spending. Only one new shop, in Yeovil, has been opened in the past month, and there are no plans for more in the near future.
There are also plans in place to safeguard a crucial income stream after the collapse of The Sleep Depot earlier this month threatened to cost Land of Leather up to £4.8m a year in rental income from in-store concessions. Homestyle Group, which is part of Steinhoff International Holdings and includes the Bensons, Sleepmasters and The Bed Shed brands, is taking over the free space in 28 Land of Leather stores, contributing about £2m a year for a minimum of four years.
"The board expects market conditions to be challenging for the remainder of 2008, and particularly in the final quarter of the financial year where trading is against strong comparatives, but remains confident in the business' ability to increase profits quickly when consumer confidence returns," Land of Leather said in a statement.
Despite the setbacks, investors remained positive, and although the share price has slumped by more than 80 per cent in the past 12 months, it rose 3.1 per cent yesterday to close at 50.5p. Matthew McEachran, an analyst at Kaupthing, said: "It is tough out there, but there are real cost savings and real partnerships that are helping to balance the negative order book. We are still forecasting that the company will make a profit, both this year and next."
But while Land of Leatherstill has options it can explore to help offset the decline, thedanger is that the consumermarket does not recover in time.
"The sales numbers are dreadful, but the share price stayed stable because investors have been conditioned to expect it to be bad," said one City analyst. "But consumer confidence has only just started to slip –unemployment is still quite low and house prices are only just starting to fall, so if one is bearish one might say that the problems are only just beginning."
Furniture shops such as Land of Leather and rival SCS Upholstery, which made a loss of £8.8m in the six months to January compared with £3.3m of profits the year before, are not the only ones to be feeling the pinch. Almost a quarter of listed retailers issued negative trading statements in the first three months of the year, compared with just 10 per cent last year.
Land of Leather's gloomy statement followed a similarly downbeat sales update from Homebase's owner, Home Retail Group, on Wednesday, while analysts at Goldman Sachs yesterday downgraded their ratings of Kingfisher, which owns B&Q. All three companies are exposed to setbacks in the housing market, as well as weakening consumer sentiment.
