MFI feels more comfortable as new store format impresses City

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The Independent Online

MFI shares shot up yesterday after it trumpeted the success of its new store format. The furniture seller revealed that the 90 stores that it had refitted in its new style had seen an uplift in sales of up to 25 per cent. MFI shares closed up 14 per cent at 168p, the stock's highest point in more than a year.

MFI shares shot up yesterday after it trumpeted the success of its new store format. The furniture seller revealed that the 90 stores that it had refitted in its new style had seen an uplift in sales of up to 25 per cent. MFI shares closed up 14 per cent at 168p, the stock's highest point in more than a year.

Delivering a presentation to City analysts, the company said: "The latest evidence is that the operating margin in these full refit stores increased from 5 per cent to 9 per cent after refurbishment ... The company is pleased with the returns these new formats are generating."

MFI, which specialises in kitchens, bedrooms and bathrooms, said it expected the benefit from existing and new product categories to help to increase UK retail sales from £861m in 2002 to £1.4bn in 2006.

Nick Hawkins, an analyst at Merrill Lynch, said he had previously been working on the assumption the refurbishment programme would lead to margins of 6.2 per cent. Mr Hawkins said: "The sums are simple enough. If MFI reaches its target of 9 per cent Ebit [margins] on £1.4bn of sales, then the UK retail business will make £125m in 2006, compared to our estimate of £66m in 2004. This would be enough to increase group earnings by over 20 per cent in 2005 and 2006."

MFI said it had been piloting eight stores with an improved version of its partial refit format for those shops that were not suitable for a full refit

Nick Bubb, analyst at Evolution Beeson Gregory, said the stock market reaction to MFI's statement was overly simplistic, by projecting forward current trends many years. "People have swallowed this. That's just ignoring the economy and all the things in the economic cycle that could interfere ... History teaches me that something will go wrong."

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