Makeover boosts MFI sales

Only last week, Williams de Broe upgraded the stock from sell to hold, and last week the share price reached a six-year high of 182p. The sales figure is likely to attract most scrutiny. The furniture retailer has predicted a 62% rise in sales from £861m to £1.4bn in the next three years on the back of a store refitting programme.

MFI said the 90 stores so far redesigned by the Conran Design Group had already shown sales increases of 25%, with operating margins in the those stores rising from 5% to 9%. The refurbishment programme is due to be completed by the end of this year.

As well as preparing interim reports, FD Martin Clifford-King will have been contending with a VAT dispute. The dispute between MFI and Customs & Excise over the level of tax the retailer has paid on some furniture transactions has the potential to throw a shadow over future results.

MFI has paid 5% insurance premium tax on guarantees rather than VAT at 17.5%. The group has paid its VAT bill to Customs, but has vowed to contest the matter. The £28.5m involved will show under ‘debtors’ on the balance sheet.

Meanwhile, the sales picture offers a mixture of good and bad news. At the group’s agm in May, chairman Ian Peacock said that orders for the first 19 weeks of the year were up 9% on the same period last year on a same store basis. But this represented a fall on the 11% growth seen up until 15 March, which Peacock put down to the impact of the Iraq conflict on consumer confidence. Sales had picked up following Easter, he said.

Rhys Williams, analyst at brokerage firm Seymour Pierce, said MFI was performing well in a difficult sector, often at the mercy of lapses in consumer confidence. ‘The market for furniture and hardware has been quite hard pushed lately, especially for big ticket items. However, MFI Group does seem to be bucking the trend.’

Williams said he expected Howdens, MFI’s trade kitchen supplier, to show particularly strong growth. Howdens has 300 depots in the UK and accounts for 25% of total group sales.

A spokeswoman for MFI said the group strongly feels that it is offering a level of design quality unmatched at mass market level. Its store refurbishment comes on the back of two years of consumer research and its recent entry into bathroom furniture has widened market share by 50% according to Citigroup Smith Barney.

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