DFS issues profit warning amid ailing sales

DFS shares plunged today after the retailer issued a profit warning, with the cost-of-living squeeze forcing shoppers to cut back on big-ticket items like sofas.    

The group told investors on Thursday it had seen order levels fall in its fourth quarter, coinciding, it said, with a ‘change in demand patterns’.

The furniture retailer, which is well-known for its sales, said it was continuing to feel the sting from supply chain woes, and lower order levels since April had led to dwindling levels of production and deliveries ‘relative to our previous experiences’.

DFS now expects its underlying pre-tax profit to come in at between £57million and £62million, which is lower than a previous forecast of between £66million and £96million. 

Full-year UK and Ireland revenues are expected to come in at around £1.15billion to £1.16billion. This is lower than forecast, but above sales levels made in 2019.

The retailer’s share price has nose-dived today, tumbling over 16 per cent earlier and down about 10.59 per cent or 19.60p to 165.40p this afternoon, having slumped nearly 40 per cent over the past year. 

In a stock market statement, DFS said: ‘The ongoing Covid-linked supply-chain disruption, combined with lower order intake since April has led to lower levels of production and deliveries relative to our previous expectations.’ 

DFS added it was ‘difficult’ to forecast consumer behaviour over the next 12 months. 

But, it expects to close the financial year with an order book elevated by roughly £30million, or 2.5 per cent, of annual revenues relative to pre-pandemic levels, which it said will provide ‘some resilience’ going into the 2023 financial year. 

The retailer said: ‘It is difficult to forecast consumer behaviour over the next twelve months, but should the trends observed in April and May continue across FY23, this would broadly balance the volume benefit from the elevated opening order bank.

‘Following the growth of the group in volume terms relative to pre-pandemic levels, we also believe that we have the opportunity to drive further cost efficiencies from our scale.

‘However, our trading history shows that the group has gained market share during periods of furniture market decline, and we believe that we will remain well-positioned against the market, given our scale, brand strength, and our integrated retail strategy.’

Shoppers facing a surge in inflation cut their spending in May by the most since the country was in a coronavirus lockdown in early 2021, according to a survey this week by the British Retail Consortium, with furniture, electronics and other expensive goods being the hardest hit.      

Britain is facing its worst cost of living crisis in three decades amid spiralling energy prices, higher taxes and issues surrounding supply chains.

Online-based furniture group Made.com issued a warning over its profit outlook last month, amid, what it called, a ‘tough trading environment.’

Brokerage Jefferies, which cut its estimate on DFS’s annual pretax profit by 36 per cent, said the retailer’s outlook remained challenging, with record low consumer confidence levels, the cost of living squeeze and uncertain by-category spending trends.

Russ Mould, investment director at AJ Bell, said: ‘Life is also getting harder for DFS as consumers watch their spending more closely. 

‘Big ticket items like sofas were always going to be the first place where people think twice about handing over the cash. 

‘If you’re under financial pressure, the idea of paying more than £1,000 for something is a big commitment. 

‘If bills are racing higher, it’s an easy decision to hold off from getting a new sofa or armchair. Therefore, DFS will have to sit tight and ride out a difficult period for the business.’

The group’s financial year ends on 26 June.