The parent company behind global furniture giant IKEA reported a significant profit decline in its latest fiscal year, as strategic price reductions, rising material expenses, and international tariffs squeezed margins despite growing sales volumes.
Financial Performance Takes a Hit
Inter IKEA Group announced a 26% decrease in operating profit, which fell to approximately €1.7 billion (US$1.96 billion) for the financial year ending August 31. This substantial drop occurred even as the company maintained steady revenue of €26.3 billion and saw wholesale volumes increase by about six percent.
Chief Financial Officer Henrik Elm explained that the profit slump resulted from a deliberate strategy to implement one of the most extensive price-cut programs in IKEA's history. The company reduced retail prices by approximately 10% to maintain affordability during a period of weaker consumer demand and ongoing cost of living pressures.
Multiple Factors Squeezing Margins
The furniture retailer's gross margin narrowed to 14% from 16% previously, reflecting the impact of these price reductions. Beyond the strategic price cuts, IKEA faced additional challenges including rising sourcing costs and tariffs, particularly during the second half of the financial year.
Like retailers worldwide, IKEA has been affected by trade uncertainty following former United States President Donald Trump's implementation of widespread tariffs. The global economic slowdown has also led consumers to tighten discretionary spending, creating additional headwinds for the retail sector.
Strategic Shifts and Future Outlook
Looking forward, IKEA is preparing to shift its commercial focus from what it terms "complete sleep"—covering beds and mattresses—to "complete cooking and eating"—encompassing kitchens, dining areas, and food offerings. This strategic repositioning represents a significant change in the company's product emphasis.
The company also made substantial investments during the year, including acquiring retail and forest operations in the Baltics. These moves included securing 8,000 hectares of forestland in Latvia to ensure long-term wood supply and developing a recycled-wood sorting facility in Lithuania.
Despite the profit decline, Elm expressed optimism about IKEA's inventory levels, noting the company has returned to "a very healthy level of inventory" that should support strong product availability through 2026 and 2027.
