Land of Leather profit collapses and outlook bleak

LONDON (Reuters) - Furniture retailer Land of Leather LAN.L reported an 87 percent drop in annual profit on Wednesday, falling foul of an economic downturn and weakening consumer confidence, and said 2009 would be challenging.

The struggling sofa chain reported pretax profit for the year to August 3 of 2.3 million pounds compared with 18.5 million pounds last year, while total sales fell 3 percent to 232 million pounds. The group's gross profit margin fell 2.5 percentage points to 42.1 percent.

The retailer, which has issued three profit warnings since Christmas, said the remainder of this year and next year would be difficult, especially due to its low opening order book and tough sales comparatives.

"It has been a very difficult year, and we expect, and are planning for, the challenging market conditions to remain throughout 2008 and 2009," Chairman Roger Matthews said in a statement.

Furniture retailers are having a torrid time as consumers stop spending on expensive items such as sofas in order to cope with rising food, fuel and mortgage costs. Earlier this year rival ScS Upholstery went into administration.

Analysts' average forecast for pretax profit for the year to the end of July was 2 million pounds, according to Reuters Estimates.

Earlier this year Land of Leather was forced to make a share sale underwritten by Investec and struggling Icelandic bank Kaupthing to raise 15 million pounds to keep trading.

Kaupthing this week received a $680 million loan from the Icelandic central bank to keep its head above water as the country's banking system required emergency measures to prevent a collapse.

However, Land of Leather, which also raised 3 million pounds through other institutions and management, told Reuters it "has not been affected by the Iceland situation."