- Ongoing market share gains
- Current trading remains resilient
- DFS passes the dividend
Shares in DFS Furniture (DFS) rose 3.7% to 156p after the sofa seller delivered forecast-beating profits for the year to 29 June 2025 and insisted it can generate profit growth in the current year, despite a subdued specialist upholstery market, driven by margin progression and cost discipline.
DFS’ orders grew by 10.1% and 10.3% in the first and second halves respectively with both the dfs and Sofology brands gaining market share.
Yet while the retailer made progress in bringing down net debt last year, it has prudently decided not to pay a full-year dividend as leverage remains above management’s preferred target range.
WELCOME GROWTH RETURN
Revenue grew 4.4% to over £1 billion in the year to 29 June 2025, sending adjusted pre-tax profits up £19.7 million to £30.2 million, a smidge above consensus.
Despite a summer heatwave and the squeeze on big-ticket spending, trading in the first 12 weeks of the new financial year has been in line with expectations and DFS confirmed it is comfortable with the full-year 2026 consensus pointing to adjusted pre-tax profits of £42 million.
Led by CEO Tim Stacey, the furniture hawker reiterated its medium-term targets of £1.4 billion of full-year revenue and an 8% pre-tax profit margin and said it is ‘planning for profit growth in full-year 2026, despite our expectation for a subdued market in the near term, driven by our compelling customer proposition, further gross margin progression and continued cost discipline.’
As Stacey explained: ‘The market demand drivers for the upholstery sector remain delicately balanced. Consumer confidence remains below the long-term average and inflation remains elevated but housing transactions have been recovering, consumer savings levels are relatively high and interest rates look set to fall.’
EXPERT VIEWS
Panmure Liberum, which has a ‘buy’ rating and 300p price target for the stock, commented: ‘Looking ahead, gross margin momentum should continue, helping to offset labour cost headwinds.’
The broker noted that ‘innovation, data, and technology are supporting new product development and improving marketing efficiency. We therefore believe DFS is well positioned to benefit from pent-up demand in the UK sofa market, while accelerating share gains and expanding into new categories such as Home, where progress is building.’
Russ Mould, investment director at AJ Bell, commented: ‘In what is a tough market for discretionary items, DFS achieving a return to profit and growth is no mean feat. What will give investors further comfort is the significant cash flow generated in the period, which has enabled the company to pay down debt, and the substantial increase in order intake.’
Mould continued: ‘The company is leveraging its strong market position and initiatives like investing in product innovation and utilising brand partnerships appear to be paying off. The company’s ability to handle delivery itself also represents an edge over some of its rivals.
‘A key measure of the company’s progress might come when it feels comfortable and confident enough to reintroduce the dividend. For now, the focus is on further reducing its borrowings.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Tom Sieber) own shares in AJ Bell.
