Sofa retailer ScS says customers are putting off big ticket purchases amidst economic uncertainty.
The Sunderland-based plc said demand is softening as consumer confidence continues to be impacted by pressure on household budgets, wider economic and political uncertainty. In preliminary full years results it has also said the rise in interest rates and mortgage costs will reduce its customers spending power and make it more costly to offer its own interest free credit.
Nevertheless, the furnishings and floorings specialist posted increased revenues of £331.6m in the year to the end of July - an 8.6% increase on 2021. ScS, which trades from 98 stores across the country, said underlying operating profit excluding business rates relief had also risen by £5.3m to £17.6m. A £7.6m reduction in business rates during the year meant operating profit reduced by £6.6m in the year.
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In a preliminary full year report to investors, the firm said current trading had been been tougher than it experienced in the six months to the end of July with order intake for the first ten weeks of the new financial year down 7.8% on a like-for-like basis, thanks to the economic upheaval.
Chief executive officer Steve Carson said the seller's low prices meant it was well placed to combat the uncertain market. He told Business Live: "Our made-to-order fabric sofas start at £329. You cannot find a made-to-order sofa at that price in the market. For us it's about remaining super competitive with products that customers want at the best price that we can."
Meanwhile Chris Muir, chief financial officer, said the plc's £70m cash pile would be invested - including across three new 'concept stores' and in potential new store openings in the UK depending on available sites and favourable rents. He added: "We do get people knocking on the door with regard to opportunities to either horizontally or vertically integrate. There are probably a number of our competitors, both regionally and nationally, who are struggling at the moment. I think we're in a good position, with strength in our balance sheet, to be able to consider all of our options."
Mr Carson also said: "We are pleased to be announcing results that are ahead of market expectations. The year saw the group deliver record sales, maintain its strong gross margin and manage costs effectively, resulting in a 68% increase in underlying profit before tax, excluding business rates relief. We also saw excellent progress in year one of our refreshed strategy, including strengthening our teams as we look to drive the business forward in the coming years.
"Trading since the start of the new financial year has been subdued, with the challenges of high inflation impacting consumers' disposable income. As previously reported, the sector is seeing softening demand as consumers defer spend on big ticket discretionary purchases.
"We are pleased with the strategic progress we have made which, coupled with the strength of the group's balance sheet, places the business in a strong position to deal with current headwinds. Whilst we expect the coming months to be challenging, we are confident in the longer term growth prospects of the business."
A £7m share buyback programme has now returned £3.3m to shareholders and ScS said it remained committed to the measure. Outgoing chairman Alan Smith said a final dividend of 9p - up from 7p in 2021 - would be paid subject to approval the firm's AGM.
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