DFS shares plunge as profit falls 43% to £58m

Shares of Doncaster-based DFS Furniture plc fell about 7% on Thursday after it reported its pre-tax profit fell 43% to £58.5 million in the 52 weeks ended June 26, 2022, amid a “reduction in the volume of orders.”

Revenue from continuing operations rose to £1.149 billion from £1.060 billion.

DFS is proposing to extend its current £25 million share buyback programme by a further £10 million and declare a final dividend of 3.7p for FY22, giving a total ordinary dividend for the year of 7.4p (2021: 7.5p).

“Following commencement of the group’s special capital return programme, over £75m of excess capital is to be returned to shareholders through ordinary and special distributions in calendar year 2022,” said the firm.

DFS Group CEO Tim Stacey said: “This has been the most operationally challenging year that we can remember with industry-wide Covid-related supply chain issues, double digit cost inflation on raw materials and ongoing colleague absence and skill shortages.

“None of this is new news now and we are not alone in having to navigate these issues …

“Looking forward, the UK furniture market continues to be challenging and the outlook for the sector remains uncertain given the macroeconomic environment. 

“From the fourth quarter of the year, we saw a reduction in the volume of orders, which we believe is consistent with the overall furniture retail market, although our elevated order bank will provide some resilience as we enter our 2023 financial year …

“We will continue to pursue our strategy outlined in our Capital Markets day on 15th March, and stand behind our ambition to grow turnover to £1.4bn and increase our PBT(A) profit margin to over 8%.”

REACTION:

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown: “The fight is on for consumers’ remaining disposable cash and furniture companies look set to be heading for a hard landing as budgets are tightened amid the cost-of-living crisis.

“Sofa chain DFS is the latest to warn of the painful effects of the march upwards in prices has had on demand for its goods, with pre-tax profit falling 43% to £58.5 million in the year to the end of June.

“Gone are the days when consumers were piling up spare cash during the pandemic, to splurge on living room upgrades to add comfort to lockdowns.

“Now in an era of make do and mend, orders are expected to decline by up to 15% even compared to the pre-Covid period.

“DFS is not only having to cope with a slowdown due to purchases which were brought forward during the pandemic, but now as household bills mount for essentials like food and heating, a plush new sofa is a luxury many consumers are happy to do without.

“It’s little wonder DFS shares have plunged by around 13% today as investors assess the pile up of problems facing the retailer.”

Victoria Scholar, Head of Investment, Interactive Investor: “Underlying profits sank from £109.2 million last year to £60.3 million this year.  As a result, DFS Furniture has been subject to price target downgrades from Jefferies and Peel Hunt this morning.

“The cost-of-living crisis, input cost inflation, labour shortages and supply chain disruptions as well as a looming economic recession are weighing on DFS’ profitability.

“The stock has also been caught up in the broader sell-off across the retail sector as rising inflation squeezes margins.

“Traders are aggressively selling the stock this morning, which is down by more than 13%, extending losses and landing the shares down by more than 50% year-to-date.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.