- Adjusted profits down 65.7%
- Final dividend passed
- Market growth ‘could soon return’
Indebted sofa seller DFS Furniture (DFS) lurched into loss for the year to June 2024 and passed the final dividend following a year marred by weak spending on big ticket items and Red Sea supply disruption.
Yet shares in the clear UK living room furniture leader ticked up 2.5% to 117.8p in early dealings on Wednesday to leave them broadly flat on the year.
The reason for the uptick? Well, there was relief as DFS avoided a third profit warning of 2024, investors believe earnings have troughed and the company expects a ‘gradual’ market recovery over the course of the year as household disposable income grows with a helping hand from falling interest rates.
SITTING UNCOMFORTABLY
Results for the year ended 30 June 2024 made for grim reading, with underlying pre-tax profit plunging 65.7% to £10.5 million and the furniture giant swinging from profits of £29.7 million to a 1.7 million loss on a reported basis.
Saddled with £165 million of bank debt, DFS also skipped the final dividend, which made for a 75.6% drop in the annual distribution to just 1.1p.
Revenue slid 9.3% lower to just under £1 billion last year and order intake weakened 1.8%, although cost savings and gross margin gains partially mitigated the impact of record low market volumes.
GREEN SHOOTS
Trading at Doncaster-headquartered DFS toughened through the middle part of the year before easier comparatives and internal initiatives delivered year-on-year growth in the fourth quarter.
Encouragingly, sales grew in the first 12 weeks of the new financial year and DFS expects a gradual market recovery over the course of the year and to grow pre-tax profits in line with the £23 million consensus estimate.
Despite the challenges facing his charge, CEO Tim Stacey said DFS is ‘optimistic for the future and see signs that market growth could soon return. We expect recent improvements in housing transaction data and strengthening consumer balance sheets to lead to increased upholstery market demand across the full year 2025 financial year.’
Stacey also views the recent acquisition of ScS by Italy’s Poltronesofa and Fabb Furniture by Australia’s Nick Scali Furniture as ‘further evidence of confidence that in the medium to long term the UK market will see strong growth as the economy recovers and consumer confidence returns.’
THE EXPERTS WEIGH IN
Julie Palmer, partner at Begbies Traynor (BEG:AIM), observed that while consumer confidence remains shaky, there is also cautious optimism that demand will recover. ‘When that happens, DFS looks to be well-placed to capitalise on the recovery as big-ticket sales come back into vogue,’ said Palmer.
‘Following a series of profit warnings prior to these results, investors will be looking for any signs of a reversal in fortunes, especially given the company’s strategic cost savings and operational enhancements.’
Russ Mould, investment director at AJ Bell, said DFS has a strong market position, ‘but its debt pile is growing, and while it is currently well within the scope of its lending facility, an improvement in the economic backdrop is probably needed to avoid this becoming a more nagging worry for investors.’
Mould added: ‘DFS expects a gradual recovery during the course of the current financial year. However, amid gloomy messaging from the new Labour Government, consumer confidence has taken a dive recently, which suggests any recovery for the sofa seller could be uneven and unpredictable. For now, it seems the company has protected margins at the expense of sales and that may prove to be a sensible decision, as long as the rebound in the housing market and increase in household disposable income continue.’
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.
