- First half profits doubled
- Robust trading continues in second half
- Profit guidance upgraded
Shareholders in DFS Furniture (DFS) were sitting comfortably after the sofa seller delivered a near-doubled first half profits and upgraded its full year profit expectations, sending the stock up 11.5% to a two-year high of 146p.
After a spell in the doldrums, green shoots of recovery are emerging at the recliner sofas, beds and mattresses purveyor, which reported solid order growth, improved gross margins and a welcome drop in debt levels for the half ended 29 December 2024.
Doncaster-headquartered DFS, the UK’s living room and upholstered furniture leader, delivered a 95% increase in adjusted pre-tax profit to £17 million.
And with trading remaining strong through the first 10 weeks of the second half, gross margins on the up and cost savings coming through, the retailer raised its full year pre-tax profit guidance to the £25 million to £29 million range, comfortably above the £23 million consensus estimate.
EXTENDING ITS LEAD
Despite subdued market conditions, DFS reported first half order intake growth of 10.1% as both the namesake and Sofology brands gained share.
Ongoing Red Sea delays resulting in longer lead times meant this order growth didn’t translate into sales growth, with revenue softening by 0.1% to £504.5 million year-on-year, but this is a timing issue and should normalise in the second half.
‘We are on track to deliver full year profit performance ahead of market expectations and our confidence in the group’s capabilities and future potential has never been higher,’ said CEO Tim Stacey.
‘Given our strong market position and relentless focus on executing our strategy, we are confident that we will achieve our £1.4 billion full year revenue and 8% profit before tax targets in the medium term and deliver strong returns for our shareholders.’
Net debt reduced by £17.2 million to £116.7 million in the half, but with leverage still well above management’s target range at 1.6 times, DFS prudently passed the interim dividend and will make a decision on the full year payout based on the group’s performance, financial position and outlook.
PAST THE PROFIT NADIR?
‘Overall, an encouraging set of numbers from DFS which suggest we are past the profit nadir,’ commented Shore Capital. ‘The company has reiterated its long term 8% pre-tax profit target supported by further market recovery, continued cost measures and a potential tailwind from any base rate reductions.’
The broker added: ‘While there is still further work to do in terms of improving margins and reducing debt, this looks a solid step in the right direction.’
Russ Mould, investment director at AJ Bell, said big ticket items like sofas should not, in theory, be strong sellers when consumers are being cautious with spending, so DFS must be doing something right to deliver such a resilient performance.
‘Product innovation, such as sofas with wireless charging points and wine coolers, might help pique some shoppers’ curiosity, yet most people are looking for comfort first and foremost. Clever marketing has certainly helped, from data analysis to catchy adverts and partnering with influencers.’
Mould added: ‘With more people preferring to chill out at home rather than go to the cinema, DFS is capitalising on the structural shift in the market with sofas that contain speakers.
‘Sofa, so good. The challenge is sustaining momentum and a lot of that is out of DFS’s hands. It will depend on the strength of the consumer and the UK economy avoiding a big wobble.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
