by Inter Ikea sells less, earns less, prepares for another lean year
We’ve been taking a close accounting look at the big Chinese furniture exporters this past month, a deep dive made possible by their public filings in China and AI’s prowess with language translation. A familiar refrain developed in these analyses, one in which tariffs, currency exchange costs, soft demand, war, raw material costs and supply chain wrinkles conspired to bring down sales and put pressure on margins. Wall Street calls these factors “headwinds.”
A huge bellwether brand recently released annual figures that confirm many of these fundamentals on a global level. Inter Ikea Group, which owns the Ikea brand and supplies its stores, earned less on lower sales in the year ended Aug. 31. Its total operating income fell 1.7% to €25.9 billion (approximately $29.1 billion) and operating profit dropped 15% to €1.5 billion (around $1.6 billion), its annual report shows. Net profit slipped 6.5% to €1.4 billion, or about $1.6 billion.
The Group sits upstream of every Ikea store, so its books show how the sector’s doing before the furniture reaches store floors. Inter Ikea somehow was able to hold wholesale prices flat to protect Ikea’s indispensable affordability, but sales volume slipped nonetheless. Goods sold to franchisees and through its own stores brought in €24.3 billion, or about $27.3 billion, which is down 2.2% compared to the year prior.
Ikea’s retail sales worldwide declined about 2% to €43.8 billion, or about $49.1 billion, giving the company three consecutive years of declines. Weak sales in China and the Middle East outweighed growth in Europe and Latin America. Inter Ikea’s figures track similarly, with income from outside the European Union falling 3.2%. However, with the Netherlands included, income from Europe fell only 0.6%.
Compare these to industry figures for the United States. Back in late April, we reported that furniture stores posted the steepest decline of any major retail category, with February sales down 5.6% on the year. Analysts pin this slump on a soft housing market, inflation and volatility relating to the war in Iran.
Pressure points
Inter Ikea specifically points to three pressure points: commodity markets unsettled by U.S. trade policy, costs and concerns relating to oil coming from the Middle East, and wage and energy inflation. Oil matters even more so when you consider that it drives freight bills and the price of plastics and foam.
Yet, Inter Ikea’s cost of materials and goods actually dropped 3.1%, while the sales margin on goods rose to 15% from 14.2% a year ago. A close look at the numbers indicates that the real damage came instead from overhead costs. Staff costs rose €239 million, with other operating expenses increasing by €198 million. IT alone represented costs of €554 million.
Salaries and wages rose 20% to €1.32 billion, even though the company’s average headcount during the period grew only 3%. Some of the gap — probably most of it — can be traced to the cost of a reorganization this past year. The company earmarked €130 million for this reorganization, during which it announced 850 jobs to be cut back in May.
As a result, Inter Ikea’s operating margin narrowed to 5.6% from 6.6%.
Another indicator of sector stress: The Group wrote off €35 million of loans to suppliers and has booked a €78 million provision against €107 million of supplier financing. This means the Group likely doubts it will get that much back. Inter Ikea also booked a €70 million allowance for receivables after carrying none the year before, receivables owed primarily by its 13 franchisee groups. In addition, seven stores in China closed during the year.
U.S. retailers will be interested to know that Inter Ikea recognized an obligation to reimburse its retailers for price increases related to tariffs. Because tariffs had pushed up wholesale prices a year earlier, the Group is passing on what it has been able to recover since the U.S. Supreme Court ruled in February that the International Emergency Economic Powers Act does not authorize the tariffs.
Hedge hogs
Inter Ikea’s currency hedges kept net profit from dropping even further. The annual report shows that hedging gains reached €256 million, or about $287.3 million, up 57% from the year prior. Absent that roughly $104 million increase, pretax profit would have declined about 13% instead of 9%. Inter Ikea does business in dozens of currencies but reports in euros, so when exchange rates move, the euro value of its sales and costs changes. To protect itself, Inter Ikea signs financial contracts such as forwards or options that lock in exchange rates ahead of time. Its hedging gains are the profit on those contracts.
Like the Chinese companies we’ve been tracking, Inter Ikea is expecting another tough slog in 2027.
“It is possible that this year will be challenging also,” CEO Jakub Jankowski told the Irish Times. “The market is not easy.”
Thus, Inter Ikea has committed to $1.3 billion in price reductions, cuts which began taking effect on Sept. 1, according to the Retail Insight Network. The annual report says the aim of the cuts is to boost volume.
In terms of store strategy, it has been clear for some time that Ikea is shifting to smaller retail footprints. Jankowski, who became CEO in January, said increasingly end consumers do not have a car or even a driving license, which makes its warehouse superstores less appealing. The answer is smaller stores in city centers. Ikea opened about 90 smaller stores last fiscal year, and Jankowski said the target for the rest of the year and next year is another 135 locations.
Jankowski told the Financial Times that Ikea needed to improve the seasonality and relevance of its products because customers frequenting its smaller stores more frequently visit those stores.
Sustainability
Two last notes of interest reading through the report: First, it shows no women on the Group’s Management Board. The company states a target of 40% female membership on its Management Board and Supervisory Board by the end of 2030. Second, more than half of the report’s 133 pages are devoted to its sustainability efforts. The company states three sustainability goals: healthy and sustainable living; climate, nature and circularity; and (being) fair and equal.
Specific to the climate, the company states that because of “many activities across the value chain, such as extraction and refinement of materials, manufacturing, fossil-fuel-powered transportation and product use at home, we have an impact on climate change. We address this impact through our actions, committing to reduce greenhouse gas emissions across our value chain.”
We will get a look at how Ikea is faring downstream later this month when the other big Ikea group, Ingka, will report its results. Ingka generates 90% of Ikea’s retail sales.
