ScS slumps to an annual loss

May 14 2008

Sofa chain ScS Upholstery is set to slump to an annual loss after it today revealed worse-than-expected trading over the crucial bank holiday weekend.

The retailer said its performance over the long weekend, a major trading period for furniture stores, had been “particularly disappointing” as like-for-like sales orders plunged by a fifth from a year ago.

ScS’s warning is fresh evidence that the slowdown in the UK property market is hurting retailers of “big ticket” items, as a steep drop-off in home sales hits demand for goods such as sofas, washing machines and carpets.

Shares in the Sunderland-based group dived 13% as it said full-year earnings would now fail to meet targets.

ScS, which made pre-tax profits of £7.07 million in 2007, had been expected to break even this year, but analysts said the group was now likely to suffer a loss of £1.6 million for the year to July.

The firm also raised concern in the City over its financial position as it said that while it is paid up with all suppliers, its cash level as of May 10 was £4.8 million.

The company said in a statement: “Since our interim results on 26 March 2008, trading has remained challenging.

“Like for like sales order intake for the eight weeks up to and including 10 May 2008 is down by 14%.

“The bank holiday weekend in isolation was particularly disappointing with like for like sales order intake down 20% and total sales order intake down 19%.”

The latest warning from ScS comes after it said in January it was scrapping the launch of four new stores and would not pay a dividend after a slump in Christmas trading.

The firm has also postponed a refurbishment of its 95 UK stores and it added today that it is continuing to focus on cost efficiencies and prudent cash management.

Nick Coulter, an analyst at Numis Securities, said the company’s like-for-like sales remain under “extreme pressure”.

“ScS now expects to be in a loss-making position for the year to July having previously aspired to break even.

“Comments that current cash on hand amounts to £4.8 million do not inspire confidence.”

Numis cut its rating on ScS shares, which have shed more than 80% in the past year, to sell.

The profit warning comes as fellow furniture retailer Land of Leather has suffered falling sales as a result of the housing slowdown while flooring chain Carpetright has also seen trading come under pressure.

Figures from the British Retail Consortium this week revealed that furniture sales dived to a three-year low last month as rising food and energy costs impacted on consumers’ disposable incomes.