DFS on track to double profits, but furniture demand remains ‘moderate’

  • DFS Furniture now expects half-year profits to be between £16 and £17 million
  • DFS CEO Tim Stacey said the furniture market ‘remains relatively subdued’

DFS expects to almost double profits in the first half of the year, but the retailer predicts ‘moderate’ demand and additional costs related to the autumn budget.

The furniture specialist now forecasts profits for the six months ending December 29 to be around £16 million to £17 million, a gain of between £7 million and £8 million on the same period last year.

According to the report, profit growth was driven by higher sales, operating cost savings and improved gross margins that offset inflation increases.

Against a more challenging trading backdrop, DFS order intake rose 10.1 percent, while the Sofology business was up 19.1 percent.

However, the Doncaster-based company expects delivered revenue to increase by only 1.4 percent due to delays caused by the Red Sea crisis.

Militant Houthi attacks on ships transiting the Suez Canal have forced many cargo carriers to make longer journeys around the Cape of Good Hope in South Africa.

Mixed update: DFS expects first-half profits to almost double, but warns of higher costs related to recent autumn budget

DFS has subsequently seen its transport costs rise and millions of pounds of deliveries delayed.

The London-listed company also warned of rising operating costs in the second half of the financial year due to higher-than-expected interest payments and changes announced in the October budget.

From April, employers’ national insurance contributions will rise from 13.8 per cent on salaries over £9,100 to 15 per cent on wages over £5,000, and the national living wage will rise by 6.7 per cent to £12.21 per hour .

Since these measures were announced, many retailers have cut jobs as the UK economy has flattened and retail sales have endured a challenging ‘Golden Quarter’.

As a result, DFS said it was taking a “cautious view” on market demand and expects profits to be weighted towards the first half of fiscal 2025.

Tim Stacey, CEO of DFS, acknowledged that the furniture market “remains relatively subdued.”

But he said DFS was “cautiously optimistic despite increased inflationary pressures and the less positive market outlook for 2025.”

Stacey added: ‘Looking ahead, we are confident that the group is well positioned to generate attractive returns for shareholders as the market recovers.’

The UK homewares sector has suffered a subdued trade in recent years as rises in mortgage rates have dampened home purchases and exacerbated cost-of-living problems.

DFS scrapped its dividend after sliding to a pre-tax loss of £1.7m last year due to ‘record low’ market demand.

The recovery will partly depend on how many key rate cuts the Bank of England makes this year, after just two cuts of 0.25 percentage points in 2024.

Dan Coatsworth, investment analyst at AJ Bell, said: ‘A sofa is an expensive purchase for most households, so organizations like DFS need people to be confident in their finances and that there is a healthy property market in which to operate. confident on demand.

“If not, households may be tempted to stick with their old suite, even if it is starting to look a bit tired and worn.”

DFS Furniture shares were 1.3 per cent lower at 139.8p late on Friday morning, but have grown by around a quarter in the past year.

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