Overall market demand across the second half of 2023 was weaker than anticipated, down approximately -9% YoY in volume terms, states DFS Furniture in its latest trading statement, which covers the 26-week financial reporting period to 24th December 2023, and provides an update on recent trading.
Group order intake was down -1.1% on last year, yet the retailer says it still outperformed "a challenging market".
"We believe this performance was particularly impacted by record hot weather in September and early October when footfall and demand proved to be especially weak," states the retailer.
"We have since seen demand recover and our profit guidance assumes market volumes are down -5% YoY through the remainder of the second half.
"Although we have not been immune to the market volatility and weaker demand, group order intake for the period of -1.1% YoY was ahead of the market.
Gross sales, recognised on delivery of orders to customers, were down -5.6% (-£39m) YoY year. As expected, this was a greater decline than order intake, as a result of 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.
"Despite the tougher-than-expected market conditions, we expect to report underlying profit before tax and brand amortisation (PBTu) for the first half slightly ahead of the prior year (£7.1m in FY23). This has been supported by improved operational performance, manufacturing and sourcing, and cost-to-operate efficiency programmes.
Non-underlying charges for the period are expected to be c.£6m, with a c.£4m cash cost. These relate to completing the planned closure of part of our manufacturing operations and implementation costs associated with our cost-to-operate efficiency programmes. Our full-year expectation for non-underlying charges of £7m (with a £5m cash cost) remains in line with previous guidance."
DFS has reduced its revenue guidance to reflect the weaker-than-expected demand.
"The impact of this reduction on PBT is expected to be offset by progress lowering our operating costs, and our full-year profit guidance remains unchanged at £30-35m PBTu (FY23 £30.6m).
"Order intake for the winter sale campaign to date is consistent with our first-half run rate. Our full-year guidance assumes that group order intake grows at low single-digit levels across the second half, partially supported by growth in the final quarter as we anniversary softer comparatives. In addition, we assume that events in the Red Sea are resolved such that customer orders are delivered in line with typical lead times close to our year end.
"Looking beyond FY24, we believe the group is well positioned to deliver strong shareholder returns. Our scale and trusted brands provide us a relative advantage and should allow us to maintain our trend of market share gains. This, together with our strategies to continue improving gross margin rate and the efficiency of our cost base, should drive improvement in profit levels. Given market volumes are over -20% below pre-pandemic levels, market recovery and our planned growth in the home segment provide us with confidence in our 8% PBT target over the medium term."
Group chief executive Tim Stacey comments: "The group has performed well in tough trading conditions. Despite the weaker-than-expected market, good operational performance and progress on gross margins and lowering our cost base have enabled us to deliver a profit for the first half that is slightly ahead of the prior year and we remain on track to deliver our full-year profit target.
"Looking forward, the group has good growth prospects and is well positioned to drive attractive returns for shareholders, capitalising on market recovery as well as growing our Home offering and delivering our 8% PBT target."
