- Higher-than-expected shipping costs
- Upholstery market ‘very weak’
- But orders up 9% in Q4
Sofa seller DFS Furniture (DFS) has coughed up its second profit warning this year, pinning the blame on weak consumer spending and Red Sea disruption, news that sent shares in the Doncaster-based retailer down 11% to 100.2p.
In March, the UK living room furniture leader warned pre-tax profits for the year to June 2024 would be between £20 million and £25 million, but also flagged ‘additional profit risk’ of up to £4 million if Red Sea shipping delays continued.
Since then, consumer demand has remained weak and Red Sea disruption has persisted, causing delays to customer deliveries and saddling DFS with higher freight costs.
As a result, the home improvement retailer now expects annual pre-tax profits to fall in the £10 million to £12 million range and has massaged sales guidance down from the £1 billion mark to between £995 million and £1 billion.
DEMAND AT RECORD LOWS
DFS explained that upholstery sector market demand has plunged to record lows as consumers wrestle with cost-of-living pressures, but the sofas, recliners and mattresses seller insisted it is well placed to capitalise on any market recovery given its record market share of over 38.5%.
The retailer also stressed that gross margin gains and cost reductions have cushioned the impact of lower sales on its profitability.
ENCOURAGING ORDER UPTICK
DFS said the £12 million to £14 million of delayed deliveries are expected to move into the next financial year and has also been ‘encouraged by an improving trend’ in orders, which are up over 9% in the fourth quarter to date.
This recent improvement comes as DFS laps weaker prior year comparatives and reflects winning initiatives to strengthen the product range and pricing in its Sofology business, as well as the reintroduction of four year interest free credit at select times to maximise sales in a tough trading environment.
‘Whilst the economic outlook remains hard to predict we expect the widely predicted lower inflation and interest rate environment to have a positive impact on upholstery market demand levels with the declines experienced across the last three years starting to reverse and the market slowly recovering in our full year 2025 period,’ said the company.
