Retailer DFS Furniture (DFS) warns market conditions are expected to remain challenging in 2019 as the sofas seller flags a slowdown in orders for the second half to date.

While it is still only March and order intake could pick up, shares in DFS fall 1.6% to 231.6p on the news. Despite prevailing political and economic uncertainty, the upholstery specialist leaves profit guidance for the year to July 2019 unchanged, for now at least.

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Reported pre-tax profit more than doubled from £6.2m to £14.1m and sales rose 29.1% to £422.3m in the 22 weeks to 30 December, driven by a strong performance online.

TRADING AT SOFOLOGY ‘VERY POSITIVE’

In difficult market conditions, DFS is aiming to boost growth by investing in online channels, delivery networks and developing brands including Sofology, which it acquired in late 2017.

The firm says Sofology’s performance continues to be ‘very positive with strong trading,’ stating it contributed £92.4m in sales and pre-tax profit of £2.8m over the first half period.

Shares in DFS have been volatile over the last few years amid mixed trading and faltering consumer confidence since the EU referendum.

In the year to 28 July 2018, pre-tax earnings fell nearly 50% to £25.8m, significantly lower than analysts’ forecasts of £42m following an ‘exceptional downturn in market demand’ in its fourth quarter.

However, a positive trading update in January as well as the absence of further profit warnings despite challenging market conditions have helped shares in DFS gain 27.1% to 231.5p over the last year.

THE PEEL HUNT VIEW

Broker Peel Hunt is positive on DFS, remarking that ‘upholstery hasn’t been the easiest market to trade in for a while, but DFS is getting stronger relative to its peers.'

Analysts Jonathan Pritchard and John Stevenson comment: ‘Current trading is a touch slower for the industry, which is to be expected given wider economic and political uncertainty, but management’s full year profit guidance is unchanged. We make no changes to forecasts today and, whilst others may, there is no reason to question the strategy or the momentum of the business – quite the opposite, in fact: this is a well-run business, with a strong, defensible market-leading position and the shares have only recently even started to vaguely reflect that.'

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Issue Date: 14 Mar 2019