DFS cites weaker demand, Red Sea disruption as it warns on profits again

(Sharecast News) - DFS warned on profits again on Wednesday as it pointed to weaker demand and Red Sea disruption. The company said that since its interim results update on 19 March - in which it issued a profit warning - consumer demand in the upholstery sector has remained challenging and Red Sea routing issues have persisted, resulting in delays to customer deliveries and higher freight costs.

As a result, the sofa retailer now expects pre-tax profit of between £10m and £12m for FY24, down from previous guidance of £20m to £25m. DFS also cautioned there is an additional profit risk of up to £4m if Red Sea shipping delays continue through to its year end date.

Meanwhile, revenues are now expected to be between £995m and £1bn, down from previous guidance of £1bn to £1.02bn.

DFS noted that consumer demand in the upholstery sector has fallen around 10% in volume terms year-on-year from a weak starting point, bringing overall market demand levels to record lows.

As far as recent trading is concerned, DFS said it has been encouraged by an improving trend in its order intake, which is up more than 9% in the fourth quarter to date, in line with its 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 4 year interest free credit at select times to maximise revenue and profit in this difficult trading environment," it said.

"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."