Home Money DFS declares another profit warning as trading remains hit by Red Sea crisis

DFS declares another profit warning as trading remains hit by Red Sea crisis

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Worst forecast: Sofa seller DFS makes second profit warning in three months
  • DFS now forecasts underlying pre-tax profits of between £10m and £12m
  • The Doncaster-based group also expects to report revenues of £995m to £1bn.

DFS Furniture has issued its second profit warning in three months amid continued disruption in the Red Sea.

The sofa seller now anticipates underlying pre-tax profits of between £10m and £12m for the 53 weeks to June, compared with previous guidance of £20m to £25m.

On top of this, the Doncaster-based group expects to report between £995m and £1bn in revenue, having previously estimated between £1bn and £1.02bn.

Worst forecast: Sofa seller DFS makes second profit warning in three months

In March, DFS lowered its forecasts due to poor trading over the previous two months and the impact of the Red Sea crisis.

Attacks by Houthi militants have forced many ships to avoid traveling through the Suez Canal and instead go around South Africa’s Cape of Good Hope, adding 10 to 14 days to journeys.

Consequently, DFS has seen its shipping costs soar and deliveries to customers worth £12m to £14m delayed.

Additionally, the company has been hit by consumer demand in the upholstery sector falling to record lows, with volumes falling around 10 percent year-on-year.

However, its fourth-quarter orders were 9 percent higher, which the company attributed to weaker annualized comparatives, a better range of products and prices in its Sofology brand and the reintroduction of 4-year interest-free credit agreements .

DFS expects upholstery sales to recover as inflation and interest rates fall to more normalized levels relative to the past three years.

“We are well positioned to capitalize on any market recovery given our market leadership position, operating leverage in the business and the progress we are making on our cost base,” the company said.

Trade in DFS has slowed significantly since Covid-related restrictions ended and the cost of living crisis discouraged the purchase of expensive household items.

The AIM-listed company, along with Wickes and B&Q owner Kingfisher, was a standout winner of the pandemic as the rise of working from home encouraged many Britons to upgrade their furniture.

Demand also benefited from a build-up of excess savings and the introduction of a temporary stamp duty holiday which stimulated sales of more spacious properties.

Analysts at Peel Hunt said: “While life is undoubtedly very tough at the moment, DFS remains a good business, in our view, well run with an enviable market position and many routes to increasing profits as the consumer change.”

‘No doubt it will, but for now, stocks may find things a little tough. However, once signs of life emerge, they will perform very well.”

DFS Furniture Stock They fell 4.1 per cent to 108 pence on Wednesday morning, meaning they have fallen around 64 per cent in the last three years.

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