DFS and Wickes profits knocked by tempering of consumer demand

Retailers Wickes and DFS have both seen profits fall after inflationary pressures led to a slowdown in the home improvement market.

Both companies continued to report modest revenue growth in their latest trading updates compared to strong comparisons last year, with Wickes achieving record sales of £822.3m.

However, worsening cost inflation and supply chain disruptions impacted their revenues, even as they tried to pass on rising costs to consumers.

Profits at furniture retailer DFS have more than halved from £88.7 million to £31.4 million for the year to June 26, falling 21 percent in the six months to July 2 to £26.9 million at DIY. the self-company Wickes.

Profits at DFS were further impacted by the end of the corporate rate cut, rising shipping and transportation costs, and boosting call center and in-home service teams to meet the larger order book.

The Derbyshire-based group described its most recent 12-month reporting period as ‘the most operationally challenging year we can remember’, defined by four quarters of fluctuating demand levels.

It said the fiscal year started with a hefty order book before trading weakened in the next quarter, which may have been due to longer lead times.

Volume growth recovered by double-digit percentages in the third quarter, but slowed in the last three months as the cost of living crisis caused consumers to tighten their belts.

Wickes also reported in July that trading had softened in the weeks following the platinum anniversary celebrations, although it continued to outperform the broader market.

Confidence: Wickes believes the fundamentals of the DIY market are strong given low unemployment, vibrant real estate market and need to make homes more energy efficient

This marks a dramatic departure for any business from the first half of the pandemic era, when the work-from-home trend left Britons locked in with extra savers looking to refurbish their properties.

Further impetus came from a temporary stamp duty holiday introduced by the UK government in mid-2020 and a growing desire among homebuyers to live in more spacious places.

They now face a much more challenging economic environment, with inflation in the UK hovering around 10 percent and energy prices skyrocketing over the past 12 months.

Lara Martinez, an analyst with global research firm Third Bridge, said: “The most pressing task for Wickes is to try and protect their margins. While supply chain disruptions have eased, raw material costs remain high.’

Wickes nevertheless believes that underlying market fundamentals are strong, given the low unemployment rate, vibrant real estate market and growing interest in making homes more energy efficient.

It still expects an adjusted pre-tax profit of £72m to £82m this year. Investors reacted positively to the company’s prospects and steered Wickes Group shares up 9.3 percent to 126.4p during late afternoon on Thursday.

DFS Furniture shares were 2.1 per cent lower at £1.33, while warning that profits could fall to £20m even if revenues remain 10 per cent above pre-pandemic levels.

“The days of consumers piling up extra cash during the pandemic to spend on living room upgrades to make the lockdowns more comfortable are over,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.

She added: “Not only is DFS facing a slowdown due to purchases brought forward during the pandemic, but with household bills rising for essentials such as food and heating, a plush new sofa is a luxury many consumers enjoy. be happy with it. do without.’