25 July 2024, 11:38
By Furniture News Mar 19, 2024

DFS "resilient" in H1 despite challenging market

DFS Furniture has announced its interim results for the 26-week period ended 24th December 2023.

The retailer says it made progress on its cost-to-operate programme in H1, with a gross margin improvement from 53.8% in H1 FY23 to 56.0% in the current period, and operating costs £11.5m lower.

Despite "a more challenging and volatile than expected upholstery market", with order volumes down some -10% YoY versus the -5% the business assumed in September, the group has continued its long track record of market share gains, reaching a record level of 38.5%.

It also saw continued improvement in customer NPS measures, with both brands continuing to grow established customer scores significantly.

DFS reported "resilient" underlying profit performance, with PBT(A) at £8.7m, up £1.6m on H1 FY23. Profit before tax was £0.9m, after deducting expected non-underlying costs of £7.1m (£4.2m cash cost), including the costs associated with closure of one of its factories, and September's refinancing.

Group order intake was down -1.1% YoY, nonetheless "outperforming the wider market". Gross sales were down to a greater extent as expected, -5.6% YoY (£39.4m) due to the unwind of an elevated opening order bank at the start of the prior year resulting in a higher level of delivered sales in the comparator period, says the retailer.

Revenue from continuing operations was down -7.2% YoY – higher than the gross sales reduction due to the Bank of England base rate changes increasing the cost of providing interest free credit (IFC), which DFS partially mitigated by amending its IFC proposition.

In the wake of H1, after a "solid start" to January, market demand weakened significantly over the last two months, with market order volumes down some -16% YoYr across January and February, says DFS, which has provided updated guidance for the year accordingly.

Revenues are now expected to be in the range of £1000m-£1015m, and PBT(A) in the range of £20-25m, excluding the risk of Red Sea delays. This represents a £60-£65m reduction in revenue guidance, partially mitigated to a £10m reduction in PBT(A) guidance.

The guidance assumes that H2 market volumes will be broadly consistent with H1 YoY, in a range of -8% to -10%, supported by weaker Q4 comparatives and a level of pent-up demand following the weak January and February.

"We remain cautious about consumer confidence starting to improve and benefit demand until FY25," says the retailer.

H2 group YoY order intake of -2% to -4% (H1 -1.1%) is based on assumptions for H2 market volumes and DFS' spring trading plans. The retailer adds that if the Red Sea issues continue through to the year end, potential delivery delays could result in up to £4m of profit being deferred into the following financial year.

Group CEO Tim Stacey says: "I want to thank our colleagues for their dedication toward providing a first-class service to our customers. Whilst the current macroeconomic situation has presented many challenges, we are pleased to have extended our market leadership while reporting a resilient profit performance through the first half.

"As a result of weaker market demand we have lowered our FY24 profit guidance to £20-£25m, excluding the potential risk of Red Sea delays which we continue to monitor closely. This reflects revenue guidance reducing by £60-65m, partially mitigated by good progress on our cost-to-operate programme.

"We remain confident in both our long-term growth strategy and the capability to deliver on our objectives. We remain well positioned to improve our profit margins without market recovery and remain confident in delivering our +8% PBT target when the market recovers."


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