Sofa not so good for DFS as inflation and Brexit hit

● Pre-tax profits down 22% at £50m and revenue flat ● Company to look for efficiency gains to compensate

Sofa retailer DFS was yesterday the second home-centred retailer in 24 hours to be battered by the stock market after giving evidence of what they both said were highly “challenging” conditions in the sector.

DFS posted a 22 per cent fall in pre-tax profits to £50.1 million and revenues only edging up 0.9 per cent to £762.7m, as it cited the faltering economy, falling consumer confidence and the Brexit-induced collapse in the pound.

Group chairman Ian Durant commented: “Continuing uncertainty in the economy led to a significant deterioration in the consumer market which impacted sales in the second half of the year.

“The continued weakness of sterling against the US dollar has also created a headwind for gross margins, some of which we have been able to mitigate.” Shares in the group fell 4.2 per cent or 9.5p to close at 215.5p.

It came the day after shares in Topps Tiles slid 3 per cent after the group posted a slump in full-year sales and spoke of a “more challenging macroeconomic environment”.

A sharp rise in high street inflation has been caused by a surge in input prices for British industry since sterling slumped in value following last year’s Brexit vote.

DFS warned the market in August that profits would be hit due to added uncertainty caused by the snap general election and warm weather, which led to weak trading at its stores.

The retailer said then it had witnessed notable declines in store footfall and customer orders from April to June.

DFS chief executive Ian Filby said yesterday that the lacklustre financial performance “reflects the current challenges of the UK furniture market”. But he added that the group’s recent strategic investments, such as the acquisition of Sofology and the exclusive licensing partnership with the British lifestyle brand Joules, gave it confidence for “modest profit growth”.

Prospects for the long term remained “excellent”, Filby said. DFS said it will seek out efficiency savings to offset pressures on revenues.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “DFS has been hit by a double whammy of slowing consumer demand and rising costs, stemming from a weaker pound.

“Big ticket items like sofas tend to be the first things consumers cut back on when they are feeling the pinch, and a slew of poor sales data from the car industry corroborates that trend.” Budget carrier Easyjet has booked a double-digit hike in passengers numbers with its load factor – the number of seats occupied on each flight – also ascending. The airline carried 7,718,714 people last month, a rise of 11 per cent on the total reported for September 2016. Its load factor increased to 93.6 per cent from 91.1 per cent a year earlier. On a rolling 12-month basis, ending in September, passenger numbers totalled 80,249,672, an increase of 9.7 per cent.