Business
IKEA reports higher profit despite revenue hit from price cuts
Global Banking & Finance Review®
Company
(Corrects paragraph 8 to show new factory was opened in Slovakia, not Slovenia)
(Corrects paragraph 8 to show new factory was opened in Slovakia, not Slovenia)
By Helen Reid
LONDON (Reuters) – Inter IKEA, the owner of the world’s biggest furniture brand, reported higher profits for 2024 thanks to lower interest payments, despite a sharp decline in revenues after it cut prices across its range of products like BILLY bookcases.
The price reductions are an attempt to boost IKEA’s affordability after it hiked prices significantly in 2021-2022 when supply chain disruptions raised raw material costs.
Inter IKEA, which supplies the stores to which it franchises the IKEA brand, lowered its prices by an average of 15% over the year, Chief Financial Officer Henrik Elm said, allowing IKEA retailers to cut prices for customers by an average of 10%, after the cost of commodities like wood fell.
Price cuts drove Inter IKEA’s revenues down 8.9% to 26.5 billion euros ($28.58 billion) for its financial year ending Aug 31. But Inter IKEA said lower prices were encouraging customers to buy more, helping to boost operating profit to 2.3 billion euros, up from 2.2 billion euros in 2023.
“You could say that, in rough terms, we are back to where we were pre-COVID in prices, if you would adjust it for inflation,” said Elm, adding that the company aims to bring prices down further this year but could not give an estimate.
Price cuts impacted Inter IKEA’s wholesale sales to retailers and also hit Inter IKEA’s franchise fee of 3% of net sales that it collects from them.
Still, net profit jumped to 2.2 billion euros ($2.37 billion), up from 1.6 billion euros last year, mostly due to lower interest rate expenses after it settled a large loan last year.
Inter IKEA opened a new factory in Slovakia and is expanding a factory in Sweden as part of investments in its manufacturing. Around 10% of the products Inter IKEA sells are made in its own factories, with the remainder sourced from external suppliers.
The IKEA franchisor also said it signed a deal to acquire IKEA retail operations in Estonia, Lithuania and Latvia from current franchisee Hof Group, with the purchase set to close in December 2024 if it gets regulatory approvals.
($1 = 0.9272 euros)
(This story has been corrected to clarify that the new factory was opened in Slovakia, not Slovenia, in paragraph 8)
(Reporting by Helen Reid. Editing by Jane Merriman)
Operating profit is the profit a company makes from its normal business operations, excluding any income derived from non-operational activities such as investments or sales of assets.
Price cuts refer to a reduction in the selling price of goods or services, often implemented to increase sales volume or improve customer affordability.
Net profit is the amount of money that remains after all expenses, taxes, and costs have been subtracted from total revenue. It indicates a company's profitability.
Factory expansion involves increasing the physical size or capacity of a manufacturing facility to enhance production capabilities and meet growing demand.
A franchise fee is a payment made by a franchisee to a franchisor for the rights to operate a franchise business, typically calculated as a percentage of sales.
Explore more articles in the Business category
