Sofa sales 'strongly linked to consumer confidence': DFS doubles profit but warns of Brexit blow to demand and border delaysHalf-year
Sofa sales ‘strongly linked to consumer confidence’: DFS doubles profit but warns of Brexit blow to demand and border delays
- Half-year profit at sofa group DFS rose from £6.2m to £14.1m, results show
- Group says it is continuing to take steps to mitigate risks from Brexit
Jane Denton For Thisismoney
Consumer demand and possible border delays pose sofa group DFS the biggest headaches when it comes to Brexit, the company has claimed.
In its latest half-year results, the group said: ‘Consumers’ willingness to make a purchase of upholstery is strongly linked to consumer confidence. The continuing significant uncertainty has obviously impacted consumer confidence.’
On the issue of potential border delays, DFS said: ‘We would still see a deferral in revenue in our made-to-order model.’
The sofa chain’s pre-tax profit more than doubled from £6.2million to £14.1million a year earlier.
Risks: DFS said Brexit-related possible border delays and consumer confidence pose risks to the firm
In the 22 weeks to 30 December, group revenue rose 29.1 per cent to £422.3million, while underlying earnings climbed 23.8 per cent to £32.8million. Operating profit surged 41.9 per cent year-on-year to £31.5million, while online sales rose by 22 per cent.
Like-for-like sales at Sofology were up 14 per cent, and DFS said it was on track to achieve £4million in cost savings from its acquisition of the group.
The homewares and furniture retailer said the results were boosted by its acquisition of Sofology, online sales, and from orders placed by customers who had deferred their purchases due to the unusually hot summer of 2018.
On its preparations for Brexit, boss Tim Stacey said: ‘While we have sought to mitigate these, their ultimate impact is uncertain and have the potential to affect our overall financial performance in the year.
‘We will continue our preparations to minimise the disruption as part of our regular risk-mitigation process, until the UK and EU’s path forward is clear.’
Profit boost: Pre-tax profit at DFS more than doubled from £6.2million to £14.1million a year earlier
Chief executive Mr Stacey said recent trading had been softer amid poor consumer confidence levels, which are expected to continue in a ‘particularly challenging’ market this year.
He added: ‘Although identifying underlying growth rates over short-term periods is extremely difficult, we note that year-on-year order intake in the second half of the financial year to date has been lower than the first half.
‘Assuming no further weakening of this environment, our profit expectations for the financial year remain unchanged.’
Jefferies analysts said DFS’s strategy is delivering results but it is ‘hard to avoid cyclical bumps.’ Peel Hunt analysts also backed the company’s strategy.
Matt Walton, a senior retail analyst at GlobalData, said: ‘The upholstery market leader finished 2018 on a high with an impressive performance across the board; revenues increased by 29.1%, and by 9.9% with Sofology included for the whole period, to £422.3m as it benefitted from sales deferred due to the weather.
Uncertainty: On its preparations for Brexit, boss Tim Stacey said: ‘While we have sought to mitigate these, their ultimate impact is uncertain’
‘Each fascia experienced like-for-like growth, net debt fell in absolute terms, profit before tax more than doubled and full year profit expectations remain unchanged.’
He added: ‘DFS has signalled, however, that early 2019 has been tougher, as it experienced “a softer start” with the uncertainty surrounding Brexit denting confidence.
‘GlobalData’s Consumer Sentiment Tracker reiterates this with the proportion of shoppers that intend to spend less on furniture in the next six months up by 2.2 and 0.6 percentage points in January and February respectively.
‘However, with the greater potential at Sofology, improved consumer spending power and returning confidence (assuming a Brexit deal is completed soon) feeding through into big ticket and DFS continuing to invest in multichannel and its range, it is well placed to outperform the furniture market in 2019.’