LONDON (Reuters) -Sweden's Inter IKEA, which supplies furniture to IKEA stores around the world, said on Friday its annual operating profit dropped 26% as the impacts of U.S. tariffs drove up costs.

The IKEA brand owner said operating profit for the financial year ended August 31 was 1.7 billion euros ($1.98 billion), down from 2.3 billion euros the year before, while revenue fell to 26.3 billion euros from 26.5 billion euros, after it cut prices.

Inter IKEA said in a statement that commodity prices and logistics costs had risen in the second half of the financial year due to uncertainties following U.S. tariff announcements.

Overall sales from IKEA stores across 63 markets around the world fell for a second year in a row to 44.6 billion euros ($52.01 billion), as the budget furniture retailer continued a push to slash prices and lure back shoppers.

While IKEA has cut prices overall, higher U.S. tariffs have forced it to increase prices on some products in the United States, which it imports from factories in Europe and China.

Lithuanian furniture manufacturer SBA, which supplies IKEA, last month launched its first U.S. factory, in North Carolina, manufacturing IKEA products such as its BILLY bookcases and KALLAX shelving units.

The factory was planned well before U.S. President Donald Trump embarked on his tariff-hiking policies, Henrik Elm, chief financial officer at Inter IKEA, told Reuters.

But it is "very timely, of course, since that is also helping us to mitigate the effects of the tariffs on those top-selling products," Elm said in an interview.

Inter IKEA said wholesale sales volumes rose by around 6% compared to the previous year as shoppers responded to lower prices by buying more.

($1 = 0.8575 euros)