DFS outlet in Swansea
DFS Furniture reiterated annual profit guidance thanks to progress in lowering operating costs / Image source: Adobe
  • H1 orders softened 1.1%
  • Sales guidance downgraded
  • Cost cuts underpin profit forecast

Sofa specialist DFS Furniture (DFS) has trimmed its sales guidance for the year to June 2024 by roughly £40 million to reflect weaker than expected demand in a ‘challenging’ living room and upholstered furniture market.

However, shares in the Doncaster-headquartered retailer rose almost 1.5% to 112.4p after the firm reiterated its annual pre-tax profit guidance thanks to continued progress in lowering operating costs.

£40 MILLION DOWNGRADE

DFS now expects to deliver full-year revenue in the £1.02 billion to £1.04 billion range, a rough £40 million downgrade from the £1.06 billion to £1.08 billion forecast given in September.

The downward revenue revision from DFS tallied with the dire UK retail sales figures from the Office for National Statistics, which showed the volume of goods sold dropped 3.2% in December with spending on big-ticket items under pressure.

Thankfully, the impact of the sales downgrade on DFS’s profits should be offset by ‘progress lowering our operating costs’ and accordingly the retailer is sticking with its full-year pre-tax profit guidance of £30 million to £35 million

Primary Health Properties CEO buys after upgrade

HOT WEATHER MEETS WEAK DEMAND

The British furniture group outperformed a tough market in the half to Christmas Eve 2023, although order intake was marginally down year-on-year.

DFS said it was particularly impacted by record hot weather in September and early October, when footfall and demand proved to be ‘especially weak’.

The positive news is the retailer gained market share and first-half underlying pre-tax profit should be slightly above last year’s £7.1 million haul, supported by continued progress on gross margin and cost base improvements.

DFS reported its order intake for the winter sale campaign to date had been ‘consistent with our first half run rate’, although the company’s full-year guidance factors in better second-half momentum assuming events in the Red Sea are ‘resolved such that customer orders are delivered in line with typical lead times close to our year end’.

SITTING PRETTY LONG-TERM?

‘Looking forward,’ said chief executive Tim Stacey, DFS has ‘good growth prospects and is well positioned to drive attractive returns for shareholders, capitalising on market recovery as well as growing our home offering and delivering our 8% profit before tax target.’

Russ Mould, investment director at AJ Bell, noted the sofa seller ‘said it had outperformed a challenging market in the second half of 2023. Investors took that as a win and bid up shares in DFS by 1.5% off the back of the trading update. It’s during more difficult market conditions that clever companies try to inch forward while weaker peers take their eye off the ball and panic.’

Shore Capital’s retail guru Clive Black insisted DFS Furniture had delivered a ‘robust’ first half update.

‘Market conditions have been demonstrably challenging and so to maintain market share and full year 2024 pre-tax profit guidance is a good result to us,’ commented Black.

‘It is often darkest before the dawn with equities and with UK base rates peaking, set to gradually ease in calendar year 2024, so improving consumer confidence, whilst employment remains fulsome, real living standards rise, and the housing market keeps resilient, the outlook for DFS could be set to progressively improve.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 19 Jan 2024