DFS issues another profit warning as trade continues to be hit by the Red Sea crisis

DFS Furniture has issued its second profit warning in three months amid ongoing disruptions in the Red Sea.

The bank seller now expects underlying pre-tax profits of between £10 million and £12 million for the 53 weeks ending June, compared with previous expectations of £20 million to £25 million.

In addition, the Doncaster-based group expects turnover of £995m to £1bn, after previously forecasting £1bn to £1.02bn.

In March, DFS lowered its forecasts due to poor trading over the past two months and the impact of the Red Sea crisis.

Militant Houthi attacks have forced many ships to avoid the Suez Canal journey and instead sail around the Cape of Good Hope in South Africa, adding ten to fourteen days to the journey.

As a result, DFS has seen shipping costs rise and deliveries to customers worth between £12 million and £14 million delayed.

In addition, the company has been impacted by consumer demand in the furniture sector falling to record lows, with volumes down around 10 percent year-on-year.

However, orders in the fourth quarter were 9 percent higher, which the company attributed to weaker year-on-year comparatives, better product range and pricing for the Sofology brand, and the reintroduction of four-year interest-free credit agreements.

DFS expects furniture fabric sales to recover as inflation and interest rates decline to more normalized levels compared to the past three years.

“We are well positioned to benefit from any market recovery given our market leadership position, the company’s operating leverage and the progress we are making on our cost base,” the company said.

Trading at DFS has slowed significantly since the end of Covid-19 related restrictions, and the cost of living crisis has discouraged the purchase of expensive household items.

The London-listed company, along with Wickes and B&Q owner Kingfisher, was a prominent winner of the pandemic as the increase in working from home prompted many Britons to upgrade their furniture.

Demand further benefited from a build-up of excess savings and the introduction of a temporary stamp duty holiday, boosting sales of wider properties.

Analysts at Peel Hunt said: ‘While life is undoubtedly very tough at the moment, in our view DFS is still a great business, well run with an enviable market position and sufficient routes to grow profits as consumers turn around.

‘That will undoubtedly be the case, but for the time being the shares may struggle a bit. But once signs of life appear, they will perform strongly.”

DFS Furniture shares fell 4.1 percent to 108 cents on Wednesday morning, meaning they are down about 64 percent over the past three years.