Wood and metal prices hit Ikea profit

The owner of the Ikea furniture brand reported a drop in annual underlying profit on Monday, brought on by higher wood and metal prices.

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

Inter Ikea said on Monday its net profit for the 12 months through August was €1.45bn, compared with €912m a year earlier, when the firm took €812m in goodwill write-downs for the acquired businesses.

“If we took that out of the FY17 result, you get to a net result of €1.7bn. So we are actually dropping a bit,” Inter Ikea CFO Martin van Dam said.

Inter Ikea reported a 12% rise in net sales to €25.5bn but said costs — mainly for wood and metals — outpaced wholesale sales and it has not passed them all on to franchisees.

“We see raw material and materials costs increasing. We see tariff challenges. We see salaries gradually increasing. And by that definition, we get an in-price onto our products that is challenging,” Van Dam said.

Due to their focus on low prices, Ikea will not pass extra costs on to retailers. They therefore have to give up “margin to be successful collectively in a franchise dimension”.