Brexit woes hit shares at Sunderland sofa firm ScS

Shares of Sunderland-based furniture and floorings retailer ScS Group fell 7% on Tuesday after it said its gross sales improved £5.8 million to £333.3 million in the 52 weeks ended July 27, 2019, but warned Brexit concerns and Bank Holiday hot weather had hurt more recent trading.

ScS said it remains conscious of the impending Brexit deadline “and the impact this may have on the market, consumer confidence and the wider economy.”

ScS added: “Whilst it is still very early in the new financial year, the group has had a more challenging start to FY20, with like-for-like order intake falling 7.6% for the period from 28 July 2019 to 29 September 2019.

“On a two year basis, like-for-like order intake was down 3.0%.

“The period has been impacted by the record temperatures seen over the key August bank holiday weekend and the increased political and economic uncertainty that the UK is currently facing.”

ScS CEO David Knight said in the firm’s statement: “I am delighted to report another year of good progress and growth for ScS in our continued effort to ensure we remain Britain’s best value sofa and carpet retailer.

“The group saw a £5.8m (1.8%) increase in gross sales in the year to £333.3m (2018: £327.5m).

“The increase was impacted by a lower opening order book at the start of the year, due to the warm weather and the football World Cup at the end of the previous financial year.

“Sales were also impacted by the closure of two stores, which did not meet the required level of return for the capital employed.

“Gross profit increased to £149.9m (2018: £147.2m), with the gross margin percentage being maintained at 45.0% (2018: 45.0%).

“Underlying EBITDA increased 3.0% to £19.7m (2018: £19.1m) and underlying profit before tax rose 7.1% to £14.6m (2018: £13.6m).

“Since the start of the current financial year, trading conditions have been more challenging, with like-for-like order intake falling 7.6% for the period from 28 July 2019 to 29 September 2019.

“This period was impacted by the record temperatures experienced by the UK across the August bank holiday weekend and the increasing political and economic uncertainty we are currently facing in the UK. 

“We remain conscious of the impending Brexit deadline, and the impact this may have on the market, consumer confidence and the wider economy.

“However, the group’s financial health has never been as strong and with our resilient, debt-free balance sheet, we are in a good position to manage the ongoing uncertainty, and furthermore seek opportunities which will add value in the longer term.

“Our strong and clear value offering has proven successful, and we are confident it will continue to appeal to our customers who want to buy great products at the lowest possible price.”

Analysts at Peel Hunt wrote: “The very strong FY19 showing will unfortunately be overshadowed by current trading travails …

“August started well, but the Bank Holiday was a horror.

“More recently things have picked back up a bit, but in general industry-wide nerves are winning the day …

“We continue to class ScS as one of the clear winners in the sector, and with the valuation very low and the yield at 7%, we remain firm buyers despite the downgrade.”