DFS cuts dividend after posting losses as debts mount

DFS Furniture has scrapped its dividend after posting losses after disruption to shipping in the Red Sea and “historically low” demand hit the home goods company’s results.

The group, which has been forced to issue two profit warnings this year, posted a pre-tax loss of £1.7m for the year to June 30, compared with a profit of £29.7m in the previous 12 months.

Executives said the “disappointing” results were an “inevitable result of the market environment” that had forced DFS to cut its dividend and sharply increase its debt.

The firm said consumer demand had suffered “significantly” over the past year, “driven by the cost of living crisis”, adding that the decline “exceeded our initial expectations and overall demand levels reached historic lows”.

Chief executive Tim Stacey assured shareholders that “recent improvements in housing transaction data and strengthening consumer balance sheets” will “lead to increased demand for the upholstery market” in the coming year.

Revenue from continuing operations fell 9.3 per cent over the period to £987.1m due to lower order intake and the impact of disruption to shipping.

The group also said that interest rate rises by the Bank of England had meant that the cost of providing interest-free credit had increased. DFS allows customers to spread the cost of new furniture through monthly payments with no set-up fees, deposit or interest.

Stacey said: ‘It’s clear that the upholstery market has a long road to recovery given the 20 per cent decline on pre-pandemic levels we’ve seen.

“Despite the challenges we have faced, we remain confident that the business is well positioned to capitalise on the market recovery.”

Net bank debt rose 17.5 per cent over the year to almost £165m, while its leverage as a ratio of debt to earnings increased from 1.9x to 2.5x.

As a result, the group will not offer annual dividends to shareholders.

DFS, which declared an interim ordinary dividend of 1.1 pence per share earlier this year, said this was “in the best long-term interests of the group”.

Shore Capital analyst Clive Black said the results would make for “grim reading” for DFS investors but reflect “the impact of a particularly weak UK discretionary goods market in 2024”.

DFS Shares The company’s shares fell almost 5% at the opening before recovering and trading 2.4% higher at 117.75 pence by mid-morning. Its value has fallen 1.6% since the start of the year but is up 4.2% over the past year.

Black said: ‘DFS has maintained service levels… has gained market share and is well positioned if market conditions improve, (but) will likely need further base rate cuts and the absence of a full-blown automotive budget collapse.

“At 5.5 percent down (year-to-date), the market is signaling minimal gains, which we agree with, so DFS should be on any positive watch list.”