DFS finds little to cushion the blows from weak consumer confidence as profits fall

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DFS is reporting its full year results on Thursday (Source: Getty)

A slide in profits at DFS Furniture is set to illuminate the slowdown in big-ticket spending from squeamish British customers this year.

The firm, which fell out of the FTSE 250 last year as its sales dwindled, has already warned that its earnings for the year to the end of July will fall by at least 13 per cent.

Updates from rival sofa specialist ScS and decorating retailer Topps Tiles this week will offer a further glimpse at whether precarious consumer confidence, which has slipped to levels last seen after the EU referendum, has caused further damage to spending on home improvements.

Full-year results from DFS, the country’s biggest sofa retailer, on Thursday are expected to show a 1.7 per cent rise in sales to £997.2m, producing earnings of £82.1m, according to analysts at Peel Hunt. This forecast is at the bottom of the company’s own profit range of between £82m and £87m.

Peel Hunt also expects a dividend cut next year, down from the 11p expected this year to 8p, as the firm pays for its recently-agreed purchase of Sofology.

Read more: Take a seat: DFS has warned of a "challenging market"

“The problem is that DFS is not on form right now. Granted, industry conditions are difficult but we don’t see DFS turning the corner back to positive LFL [like for like sales] or forecast momentum any time soon,” they said in a recent note.

DFS has tried to extend its reach by agreeing to buy rival Sofology for £25m in August, two years after it snapped up smaller competitor Dwell.

Another attempt to cushion the blow of weak sales has come from a trial of new smaller store formats, offering DFS an entry into central London and other town centres. The group has also tried to rejuvenate its range through collaborations with French Connection, Joules and Country Living.

DFS has struggled since returning to the stock market in 2015, following more than a decade in the hands of founder Lord Kirkham and later the private equity group Advent. The group’s shares have sagged from the 255p float price to 220p last week.

The shares have recovered some ground after a pummeling in the wake of a profit warning in June, when the firm said softer consumer spending was to blame for slow spring sales.

The UK’s upholstery market remains smaller than it was before the financial crisis in 2008. DFS sells more than a quarter of all upholstery in the country from its 100 stores and fast-growing website. About two-thirds of its sales are made on interest-free credit.

Read more: Furniture giant DFS is set to unveil a deal to buy smaller rival Sofology