November 8, 2019 / 11:03 AM / a month ago

IKEA brand owner's pretax profit edges up despite high costs

STOCKHOLM, Nov 8 (Reuters) - The owner of the IKEA furniture brand reported a small rise in annual pretax profit as revenue held up while higher investments and a jump in online trade related costs squeezed margins.

Inter IKEA Group said on Friday its pretax profit rose 5%, to 1.79 billion euros ($1.98 billion), in the 12 months through to August.

After decades of rapid growth, the world’s biggest furniture brand is battling to adapt to new shopping habits and the rise of online rivals such as Amazon and made.com, while also trying to maintain its hallmark affordability amid high raw material and other costs.

It is investing heavily in new store formats, more e-commerce and extra services such as furniture delivery and assembly.

“Inter IKEA Group financial results remained stable in FY19 despite pressure on the gross margin and investments in the IKEA range and customer experience,” Chief Financial Officer Martin van Dam said in a statement.

Its gross margin narrowed to 18.0% from 18.8%, and the operating margin to 7.3% from 7.9%.

The group is a franchisor to store owners, of which INGKA Group is the main, and is also in charge of product development and supply. It generates the bulk of revenues from sales of goods to its franchisee retailers, and around 5% from franchise fees.

Van Dam told Reuters that costs for packaging and logistics related to its fast-growing e-commerce business rose substantially.

Inter IKEA said in September that franchisees had sold a combined 41.3 billion euros worth of goods and services in the year, a 6% rise that included a 43% jump in online revenue to 7% of total turnover.

It said on Friday it had invested more than 175 million euros into product development, material and retail innovations in the year. Van Dam told Reuters investments increased slightly from the year before, and would grow further in the current.

$1 = 0.9050 euros Reporting by Anna Ringstrom; Editing by Pravin Char

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