- Shoppers are putting off spending on sofas and carpets
- ScS’ orders down in first 10 weeks of new financial year
- Resilient retailer to hike dividend by 35%
Shares in retailer ScS (SCS) ticked up 1.2% to 123p as the self-styled ‘Sofa Carpet Specialist’ reported better than expected results for the year to July 2022.
However, investors’ focus was on the outlook statement, where the value-for-money sofa, chair and carpet seller surprised nobody with news trading had toughened over recent weeks.
High inflation is eating into consumers’ disposable income and in common with furniture industry rivals DFS (DFS) and Made.com (MADE), ScS is seeing softening demand as cash-strapped consumers put off spending on big ticket discretionary purchases.
Annual results from Sunderland-based ScS were resilient and came in slightly ahead of recently upgraded forecasts.
Sales were up 8% year-on-year to £344.7 million as in-store furniture and flooring sales performed well, although online sales declined as more normal trading patterns returned post-Covid.
Despite a deepening cost-of-living crisis, supply chain disruption and inflationary cost pressures, ScS delivered robust annual pre-tax profits of £16.4 million (2021: 18.4 million), ahead of the £15.5 million Shore Capital was looking for, and proposed a 35% hike in the full year dividend to 13.5p.
WHY HAS TRADING BECOME TOUGHER?
ScS warned momentum had proved ‘tougher’ since the summer with like-for-like orders down 7.8% in the last 10 weeks compared with the same period in full year 2019.
‘Trading since the start of the new financial year has been subdued with the challenges of high inflation impacting consumers’ disposable income’, conceded CEO Steve Carson.
‘As previously reported, the sector is seeing softening demand as consumers defer spend on big ticket discretionary purchases.’
Carson added: ‘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.’
WHAT ARE THE EXPERTS SAYING?
Following management’s cautious comments, Shore Capital downgraded its sales forecast for the year to July 2023 from £349 million to £328 million, though the broker left its pre-tax profit forecast unchanged at £8 million to reflect ScS’ ‘resilient’ gross margins as well as its confidence management will keep a lid on costs.
Meanwhile, AJ Bell investment director Russ Mould commented: ‘With big ticket items firmly off the agenda for cash-strapped consumers, results from sofa seller ScS could have been a lot worse.
‘Yes, earnings are down, but its results are still ahead of expectations and it benefits from having a strong balance sheet with no debt. If you’re going through a tough patch, not drowning in debt is a distinct advantage.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
