MFI recovery hopes lifted by sales rally

British furniture retailer MFI today unveiled a 26% fall in half-year profits but insisted it was winning the battle to revive sales at its core chain.

MFI credited an advertising blitz and price-cuts for a double-digit increase in sales volumes during the 24 weeks to June 11, enabling it to grab market share despite widely-reported signs that consumers are spending less on their homes.

More ranges have been offered with a price tag of less than £500 (€717.70) and this drew a positive response from customers.

MFI said products introduced at the end of 2004 represented a quarter of all orders in the first half of the financial year, with sales of bedroom furniture proving “especially strong”.

Sales at its 217-strong chain of MFI stores in the UK grew 2% on a like-for-like basis during the period and total sales were 3% higher, although net orders fell by 2%.

Pre-tax profits before exceptional items, such as the cost of ending its Hygena at Currys venture in May, fell to £22.9m (€32.9m) from £31.1m (€44.6m) a year earlier, although the figure was ahead of the £15.1m (€21.7m) expected by the City. Shares rose 6% following the update.

Price-cutting at its core retail stores put profitability under pressure, but MFI said margins had improved at its Howden Joinery business where operating profits were 27% higher than a year ago at £43.6m (€62.6m).

Chief executive John Hancock said the retailer was making progress following a difficult period, which saw an overhaul of its distribution network go badly wrong.

MFI revamped its supply chain in March last year to replace a system that was 20 years old and could no longer support the growth of Howden Joinery or the expansion of the group overseas.

Evidence that these problems were being overcome came with news that the system had coped with record orders in the winter sale and the rate of mistakes in delivering furniture to the homes of customers had fallen to below 5% from 12% before the changes were made.

This had given MFI the confidence to beef up its commitment to customer service with a new charter helping to cut the level of customer refunds and remedial costs.

Action taken to improve performance had eliminated £16m (€23m) of costs in the UK retail business and MFI said further savings were expected in the second half, driven by the recent introduction of charges for home delivery.

At the bottom line, MFI said pre-tax profits nearly doubled to £58.5m (€84m) after it resolved issues related to its pensions fund and netted a credit of £41.1m (€59m).