DFS Furniture: Sofa retailer issues second profit warning as Red Sea disruption takes toll
Sofa retailer DFS Furniture has issued its second profit warning this year in the face of tricky Red Sea disruptions and weak consumer spend.
Back in March, the popular upholstery store warned it would make around £20-£25m, due to a weak retail market but the figure has now been slashed to between £10-12m.
This morning, the board said the cut to its profit was driven by a lower level of delivered customer orders, with £12-14m of delayed deliveries from the Red Sea disruption.
Those deliveries are now expected to move into the next financial year. The financial year of 2024’s revenue is now expected to be in a range of £995m-£1,000m. It said there was an “additional profit risk of up to £4m if Red Sea shipping delays continued through to our year end date.”
The brand, which has around 128 sites across the UK and wider Europe, said it was also dealing with the impact of higher shipping costs as “a result of freight rates increasing above previous expectations in our fourth quarter”.
DFS board members told the market that consumer demand in the upholstery sector has declined 10 per cent in volume terms year on year from a weak starting point bringing overall market demand levels to record lows.
The group has continued to operate through the period with market share of over 38.5 per cent.
The board said: “We have been encouraged by an improving trend in our group order intake, which is up over nine per cent in our fourth quarter to date, in line with our expectations.”
“The recent improvement comes as we annualise weaker prior year comparatives and also following successful initiatives to strengthen the product ranging and pricing in Sofology and reintroducing four year interest free credit at select times to maximise revenue and profit in this difficult trading environment.
They added: “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 FY25 period.
“We are well placed to capitalise on any market recovery given our market leadership position, the operational leverage in the business and the progress we are making on our cost base.”
Shares in the firm fell by over four per cent in early trade.
Analysts at Jefferies rated the stock a ‘Buy’.
They said: “DFS has updated ahead of plan to highlight a weak market, delayed deliveries, and higher shipping costs. As a result, FY24 PBT is guided to £10-12m (from £20-25m). Supported by an improved early Q4 trend, we continue to anticipate a recovery in FY25, and see upside when the market recovers.”