Inter Ikea Group, the owner of the Ikea brand, posted 58.9% increase in fiscal year net profit and an 11.5% increase in revenues but said rising raw materials costs and tariffs weighed on its bottom line.
After adjusting out write downs related to acquisitions from the previous year and this past fiscal year, profits declined nearly 12%.
Net revenues for the period ended Aug. 31, were 25.52 billion euros, up from 22.88 billion euros a year ago. Inter Ikea reported net income of $1.45 billion euros, up from $912 euros. The acquisition of range supply and industrial companies reduced its net income by 812 million euros in fiscal 2017 and by 72 million euros this past fiscal year. Without them, Ikea had a more profitable 2017.
“Increased prices for raw materials and other resources, together with growing tariff charges pressured results in (fiscal year 2018),” the company said in a release. And this was before the bulk of the U.S. tariff on Chinese imports kicked in.
Ikea franchisee retail sales grew 4.5% to $38.8 billion euros. The sales gain was lower than expected while raw material prices increased.
With increasing online sales, “we are making changes to our supply chain setup to accommodate for alternative ways to delivery Ikea products to end customers,” Chief Financial Officer Martin van Dam said in the annual report.
In the United States this year, Ikea U.S. reversed plans for two additional big box stores and put others under review while it pivoted expansion plans to a series of online-order oriented fulfillment centers.
Ikea has 422 stores in more than 50 markets worldwide. An estimated $3.32 billion in furniture, bedding and accessories sales at its 44 U.S. stores during the 2017 fiscal year made Ikea’s U.S. operations No. 3 on Furniture Today’s most recent Top 100.
New store formats noted in the annual report include smaller stores in secondary markets and city centers built without self-serve warehouses; pick-up points that offer custom a more convenient and affordable alternative for picking up orders or arranging for delivery; and experience- and theme-oriented pop-up stores that would opened for a maximum of six months.
Van Dam said the development of new store formats and e-commerce capabilities “impacts short-term results.”
To support its low-price commitment, the company took a 1% reduction in its gross margin. “Going forward, we continue to reduce costs by developing more efficient supply, logistics and procurement processes,” van Dam said.
“To meet the challenges of a rapidly changing retail environment, Inter Ikea Group is investing in franchise, product range, supply chain and industrial development,” the company said a release. “These investments are complemented by development efforts from our franchisees.”
The company is devoting “significant resources to make Ikea more affordable, accessible and sustainable for Ikea customers,” van Dam said.