Nothing will cushion the blow to ScS profits

Jan 15 2008 by Andrew Mernin, The Journal

SOFA retailer ScS Upholstery could be set to deliver its lowest annual profit for 10 years as it battles with the credit squeeze, according to analysts.

Meanwhile, the Sunderland-based firm has also scrapped plans to launch four new stores this year after reporting a 16% slump in revenue in the January sales.

The retailer had originally planned to open five new stores this year, but after posting a 16% drop in like-for-like sales in the three weeks since Boxing Day it will now only open one.

The company, which admitted it has been forced to reduce this year’s advertising budget, has also been widely tipped by analysts to record a severe drop in annual pre-tax profits in 2008.

ScS’s house broker KBC Peel Hunt slashed its forecast for the company’s pre-tax profits for the year to July 2008 from £5.5m to £2m – this is in stark contrast to last year’s recorded figure of £14.2m. Fellow broker Dresdner Kleinwort painted a bleaker picture, predicting a loss of £1.7m this year, with the firm expecting to recover to £1.5m by 2010. ScS chief executive David Knight said if brokers’ predictions were ultimately proved accurate it would be the company’s worst return in 10 years.

He said: “The business is quite different from what it was 11 years ago when it was a small business in the North-East. Today it is much larger and the climate for big ticket items is very difficult.We want to preserve cash this year so we have made the decision that we will open one new store this year.”

In a trading update issued yesterday the firm also said it had postponed plans to refurbish its 95 UK stores due to poor results, which it blamed on the credit squeeze and pressures on consumer spending. The statement warned: “We see no relief from the credit squeeze and pressures on consumers’ disposable income for the remainder of the financial year and although our comparable numbers are softer, it is unlikely that we will see any significant improvement on our year to date like-for-like sales.”

The ScS story

December 2001: Reveals forecast-beating pre-tax profits of £7.7m.

July 2002: Opens its first store in Scotland.

November 2003: Sees its share price plunge by more than a quarter as it reveals an unexpected shortfall in profits.

February 2004: Opens its 60th store.

October 2005: Ploughs £2m into new North-East stores, creating 20 jobs.

November 2006: Posts an 11% climb in pre-tax profits to £16.8m.

May 2007: Blames rising interest rates and a fall in household disposable incomes for a drop in profits of more than 50%.