DFS Furniture shares fall 11% amid slowing demand

Shares of Doncaster-based DFS Furniture plc fell as much as 11% on Thursday after it published a statement on recent trading through to June 5, 2022, reporting slowing market-wide demand in its fourth quarter.

DFS said it now expects underlying profit before tax and brand amortisation of £57 million to £62 million — lower than a prior forecast of £66 million to £96 million.

“The third quarter of our financial year (ending on 27 March 2022), saw double digit growth in the volume of orders taken across the group relative to a FY19 pre-pandemic comparative period,” said DFS.

“This volume growth was achieved despite offsetting significant cost inflation through mitigation and retail price increases.

“Moving into the fourth quarter the UK furniture market has seen a change in demand patterns with recent data from Barclaycard suggesting a c. 2.1% reduction in transactions in April relative to pre-pandemic periods.

“We have seen a similar change in order volumes across our group.

“This reduction in transaction volumes comes despite evidence of the group maintaining its recent market share gains based on our proprietary data.

“While we have increased our weekly production and delivered revenues progressively over Half 2, to record levels in the fourth quarter, the ongoing Covid linked supply-chain disruption, combined with lower order intake since April has led to lower levels of production and deliveries relative to our previous expectations.”

In its 2022 financial year outlook, DFS said: “Subject to any variations in the rate of deliveries of the final weeks, we now expect UK & ROI full year revenues of approximately £1,150-1,160m and underlying profit before tax and brand amortisation of £57-£62m, which compares to pre-pandemic FY19 pro forma 52 week revenues of £996.2m and profit before tax of £50.2m.

“Following payment of the recent £25m special dividend and the ongoing share repurchases, we expect to close the year with a net bank debt position of less than £100m, in line with the upper end of our 0.5x-1.0x target leverage range.

“The group remains in a strong financial position with significant available headroom under our £215m bank facility.”

In its 2023 financial year outlook, DFS said: “We now expect to close the financial year with an order bank that is elevated by c. £30m or c. 2.5% of annual revenues relative to pre-pandemic levels, which will provide some resilience going into our 2023 Financial Year (FY23).

“It is difficult to forecast consumer behaviour over the next twelve months, but should the trends observed in April and May continue across FY23, this would broadly balance the volume benefit from the elevated opening order bank.

“Following the growth of the group in volume terms relative to pre-pandemic levels, we also believe that we have the opportunity to drive further cost efficiencies from our scale.

“However, our trading history shows that the group has gained market share during periods of furniture market decline, and we believe that we will remain well-positioned against the market, given our scale, brand strength and our integrated retail strategy.”