- Order intake up 10.1%
- Profits to be first-half weighted
- Management cautious on strength of consumer
Sofa seller DFS Furniture (DFS) enjoyed better-than-forecast orders in the half to 29 December 2024 that included the Christmas run-in.
As a result, DFS expects to deliver first-half pre-tax profits in the £16 million to £17 million range, nearly double the £9 million delivered last year.
Yet despite this impressive first-half profits recovery and a solid start to DFS’ Winter Sale, management is still conservatively guiding to full-year 2025 profits of £22.7 million, in line with consensus.
Shares in the Doncaster-headquartered retailer softened 2.9% to 134p on this cautious outlook, which reflects the weaker consumer environment seen post the Budget and the additional costs from increases to the National Living Wage and National Insurance Contributions weighing on its second-half estimates.
WINNING IN A WEAK MARKET
Despite a weak market backdrop and Red Sea shipping delays, order intake at the UK’s living room and upholstered furniture leader rose 10.1% in the half.
This reflected higher-than-expected market share gains for both the DFS and Sofology brands, with the retailer also benefiting from disruption at arch-rival ScS.
CEO Tim Stacey explained that while the market remains ‘relatively subdued’, DFS continues to deliver on its self-help initiatives, having ‘strengthened our position as the clear market leader, improved our gross margin and reduced our operating costs, all of which have helped us to deliver year-on-year profit growth.’
Stacey continued: ‘We remain focused on executing our plan, and are cautiously optimistic despite the increased inflationary pressures and less positive market outlook for 2025.’
EXPERT VIEWS
Jefferies, which sees DFS as a top pick for 2025, continues to be ‘encouraged by DFS’ operational and commercial execution, the resultant share gains, and the group’s demonstrable potential for margin recovery as the market improves.’
The broker added: ‘Management continues to target an 8% profit before tax margin, the delivery of which we see as ultimately achievable, and would leave the shares looking very cheap, in our view.’
Dan Coatsworth, investment analyst at AJ Bell, observed that a sofa is an expensive purchase for most households so the likes of DFS need people to be feeling confident about their finances and for there to be a healthy property market in order to be confident on demand.
‘If that isn’t the case, households might be tempted to stick with their old suite even if it is starting to look a bit tired and worn,’ said Coatsworth.
‘Unfortunately, the situation in the UK is uncertain and that is reflected in DFS’ warning of sluggish demand as 2025 gets underway. Reupholstering the company’s strategy delivered improved profit in the six months to the end of December as costs came out of the business. However, cost pressures are likely to increase again thanks to hikes in the National Living Wage and employers’ National Insurance contributions.’
Coatsworth continued: ‘All DFS can do is ensure its business is run as efficiently as possible and wait for an upturn in consumer confidence to encourage increased spending in its stores again.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
