MFI sinks after winter sales disappoint

MFI admitted yesterday that the knock-on effect of luring back lower-spending customers had put its profit margins under pressure.

The furniture retailer, which is struggling to implement new supply systems, said its underlying sales had returned to growth, climbing 2 per cent during its all-important winter sale. But its shares fell 5 per cent on disappointment that the rebound was not greater.

There was further disappointment at signs that Howden Joinery, its trade arm, was struggling to maintain its customary double-digit top line growth. Underlying sales at Howden increased by 6 per cent from 26 December to 2 March. "Any relief at a positive same store figure from MFI will be tempered by the dramatic deceleration at Howden," David Jeary, a retail analyst at CSFB, said. Shares in MFI, which have been supported by bid speculation, sank 6.25p to 128.25p.

John Hancock, the chief executive, was sanguine about the group's trading update, which came one week after it reported a drop in 2004 pre-tax profits to £25m from £117.9m. "I am pleased the UK retail business has returned to growth after a very difficult second half," he said. "It's the first stepping stone to recovery but we still have a lot more to do."

The group said profit margins would be flat after its decision to push budget bedroom, kitchen and living room ranges. Logistics costs as a percentage of sales would increase because it would have to deliver more sub-£500 orders to more homes.

Mr Hancock said the slowdown at Howden's was because the building materials retailer was reaching maturity.

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