- Year to June boosted by market share gains
- Marked slowdown in orders over the summer
- Firm outlines possible earnings scenarios
Furniture retailer DFS (DFS) posted results for the year to June which met market expectations but its less than optimistic outlook rattled investors who sent the shares sliding 12% back to their recent lows at 119p.
Analysts at Shore Capital suggested the mid-point of the firm’s implied guidance range for this year would mean a 35% cut to consensus earnings forecasts.
SOFA SO GOOD
Sales for the 12 months to June were £1.15 billion, an increase of 8.5% on the previous year and more than 15% above pre-pandemic levels.
The firm enjoyed double-digit growth in orders as the core brand increased its market share and it opened more Sofology stores, while online sales growth slowed compared with the high levels of the previous year which were boosted by lockdowns.
Excluding Sofa Workshop, which was disposed of in late 2020, and the Dutch and Spanish businesses which were shut down this March, profits before tax dropped to £58.5 million from £102.6 million.
Bank debt rose from £19 million to £90 million as working capital needs normalized and the company started its capital return programme, which comprised a special dividend and a share buyback, extended by another £10 million today.
UNCOMFORTABLE OUTLOOK
However, the company noted its order volumes had ‘softened markedly’ in in July and August relative to pre-pandemic levels in a trend seen across the furniture industry as consumers tightened their belts, albeit there had been a small rebound this month.
It has therefore put forward three scenarios for the current year based on a fall in market-wide like-for like orders of 5%, 10% and 15% relative to pre-pandemic levels.
In its most optimistic scenario, where orders fall by 5%, the group sees its revenues staying around today’s level or 23% above 2019 levels with pre-tax profits reaching around £54 million.
In its most pessimistic scenario, where like-for-like orders fall by 15% against pre-pandemic levels, revenues are likely to drop to just over £1 billion and pre-tax profits are seen at £20 million.
The firm warned that its best-case and medium-case scenarios both depended on this month’s tentative recovery continuing, which suggests analysts and investors would do better to err on the side of caution.
Eleonari Dani at Shore Capital flagged that even in the medium-case scenario earnings forecasts would need to be cut by 35% from the current consensus of £57 million to the company’s estimate of £36 million.
We would point out that if the worst-case scenario turns out to be the most realistic, earnings forecasts would have to come down by 65%.
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