FURNITURE retailer ScS Upholstery blamed a pricing mix-up over a key leather product range for profits plummeting 12 per cent.

The Sunderland company described its full-year results as "a great disappointment" after discovering its 56 branches had given incorrect data on profit margins for six months.

The problem stemmed from a pricing review of its Guardsman products at the end of last year that led to its Guardsman Leather Care Kit being given the wrong price tag.

Chairman Mike Browne said this meant each branch charged "a ridiculously low price that was below costs" for the sale of the care kit, which is given to customers buying any of its range of leather sofas.

The branches then reported higher margins than the business was actually achieving, he said.

Profits also suffered from an increase in leather sales over other fabrics that encouraged managers to cut prices and offer special finance deals, the company said.

ScS posted pre-tax profits of £8.6m for the year to September 30, with profit margins falling to 46.7 per cent compared with the 48 per cent achieved last year.

Mr Browne said the problems came to light at the end of last month, which led to the company issuing a profits warning, sparking a 27 per cent plunge in the share price.

The lower level of margins will continue over the next three months due to a time lag between order and delivery of leather sofas. But it should return to normal from January on the back of a strong order book, Mr Browne said.

A review of operations has led to changes in the weekly reporting system, while all future price rises must be signed off by chief executive David Knight.

ScS will also phase in a new reporting package over the next six months at a cost of £200,000, which will be incorporated into next year's balance sheet.

Shares rose 37p, or 23 per cent, to close at 203p.