DFS sees a year of tough trading ahead
DFS FURNITURE warned that trading will remain tough in 2018 as it reported a fall in first half sales, excluding acquisitions.
UK consumers are being squeezed by inflation and are seeing wages fall in real terms. Sofas are seen as a discretionary ‘big ticket’ purchase and an industry survey published on Tuesday showed consumers cut back on non-essential purchases in January.
“We recognise that the living room furniture retail market is likely to remain challenging in 2018, given current consumer confidence levels,” Doncasterbased DFS said.
The group’s chief executive Ian Filby added: “Consumer confidence is a bit damp and the market is 2 to 3 per cent down.
“It’s clearly not the buoyant market of a couple of years ago. It’s a bit moribund and it will continue to be moribund this year and next year.”
Despite the difficult market conditions, Mr Filby said DFS has performed well.
“We’re really pleased with how the first half has gone,” he said.
“The organisation is in a really good place. Everyone knows it’s tough. Over Christmas some firms were pressured and dropped their advertising whereas we’ve had a very strong advertising campaign.
“One or two of the weaker players have had to chip away at their expenditure.”
DFS has maintained its financial outlook for the full 2017-18 year, forecasting modest growth in earnings before interest, tax, depreciation and amortisation (EBITDA) excluding acquisitions and a stronger sales trend in the second half.
“We’ll show a small growth in profitability,” said Mr Filby.
“I would anticipate we’ll see our market share grow again. Some smaller independents have had a tough time.
“It’s not the credit crunch of 2008 to 2012 but there is a lack of clarity as to where we’re going as a country. We’re looking at a couple of years of moribund trading. If you’re strong you can keep driving the growth agenda and take share. The stronger players will be advantaged.”
When asked what advice he would give the Government over how to handle the Brexit talks, he said: “All retailers want the border between ourselves and Europe to be as frictionless as possible.”
Before the update, analysts had forecast 2017-18 EBITDA of £83.8m, down from £82.4m in 2016-17.
DFS’s gross sales, excluding the sales of Sofology which it bought last November, fell 3.5 per cent over the 26 weeks to January 27. Gross sales rose 4.0 per cent.
Last month, Carpetright, Britain’s biggest floor coverings retailer, warned on full year profit citing waning consumer confidence.
Analyst Phil Carroll at Shore Capital said: “Looking ahead, DFS states the living room furniture market is likely to remain challenging in 2018 given consumer confidence levels. However, it expects to meet full year expectations which are for modest growth in EBITDA excluding acquisitions.
“This is to be driven via the an- nualisation of product and operating cost efficiencies in the second half.
“We believe DFS has been investing heavily in marketing spend over the festive period so we are surprised underlying sales are in decline to the extent reported. We were expecting a flatter performance albeit at a cost.”
Analyst Jonathan Pritchard at Peel Hunt added: “The temperature in the furniture market is frosty: today’s first half trading statement suggests that in-store like-for-like growth remains firmly negative for both DFS and the market.
“To look at the glass half full, life-for-like sales are at least a little bit better than in the second half at DFS, the comparative gets easier and management is confirming its expectation of growing EBITDA this year.”