Even assuming a 15% fall in second half orders and more enforced showroom closures, the company sees earnings before tax and brand amortization ‘within the upper half of the current market forecast range’ thanks to a strong performance in the 24 weeks to date.
This comes despite 30% of its showrooms in London, the South East and Wales being closed.
Analyst estimates had been widely cast given the nature of uncertainty this year with lockdowns being followed by short reopening spells only to face further lockdowns. The forecast range for the year to June 2021 had been pitched at between £81 million to £118 million, so earnings of at least £100 million now seem likely.
STRONG SALES AS CUSTOMERS GO ONLINE
Sales in the first half to date are running 19% above last year, helped by a 76% surge in online ordering and market share gains. Moreover, the firm’s current order book is £200 million larger than this time last year, despite a small drop in the second quarter.
As well as raising its earnings outlook, DFS reduced its year-end net debt forecast to just £40 million to £50 million, ‘reflecting the strength of first half trading supported by associated working capital inflows’.
In addition, this week the firm extended the maturity of its £225 million revolving credit facility from August next year to December 2023, which means the temporary restrictions on its ability to pay dividends and make acquisitions are lifted.
Chief executive Tim Stacey said that despite the unpredictable trading environment, the company’s business model remained resilient ‘and we are well set for medium-term growth’.
AGILITY IN FACE OF ADVERSITY
Shore Capital analyst Greg Lawless commented: ‘This is a robust trading update showing a management team dealing in an agile manner to uncertainty and changing circumstances. As market leader and with capacity coming out there remains an opportunity to take further market share.’
Lawless called the current share price valuation ‘undemanding for a market leader with self-help levers and significant liquidity’, adding he sees DFS as strongly placed post-Covid thanks to its tight grip on costs, inventories and cash generation, as well as its extended banking facility.
DFS will announce its interim results for the period ending 27 December 2020 on 9 March 2021.
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