DFS dips into the red amid shipping delays

A slide in sales combined with Red Sea shipping delays and higher debt costs have pushed Britain’s biggest sofa seller to a loss.
DFS Furniture reported a £1.7 million pre-tax loss for the 53 weeks to the end of June, down sharply from a profit of £29.7 million a year earlier. Its revenue fell by 9 per cent to £987 million, from £1.09 billion, lower than a range of £995 million and £1 billion that the company had forecast in June.
The Doncaster-based DFS, which sells made-to-order sofas from about 120 sites in the UK and the Republic of Ireland, as well as online, has issued two profit warnings in the past 12 months. It has been battling with a slowdown in consumer spending on big-ticket items.
Tim Stacey, its chief executive, said that weaker consumer confidence and a slowdown in the housing market had weighed on demand. In addition, trade disruption in the Red Sea, which had increased shipping times from ten to twelve weeks, showed no sign of improving. Freight rates had been more than double the previous year, Stacey, 53, said.
However, he said there had been “some flickering signs of recovery” in recent months, as housing transactions started to rise again, while the “mid-single-digit” decline in sales volumes last year had been less severe than a 10 per cent fall across the broader upholstery market. Orders during the fourth quarter were 9 per cent higher year-on-year, which also included an increase in the average order value as shoppers traded up. Sales should return to growth this year, Stacey said, which would help to lift the gross margin.
DFS has undergone a round of cost savings in an attempt to mitigate some of the decline in sales, including closing one of its three manufacturing sites and one of its two wood mills. Analysts at Peel Hunt, the house broker, have forecast revenue of £1.04 billion and a pre-tax profit of £22 million for the present financial year.
The company opted not to declare a dividend to help to protect it against a “severe but plausible downside” trading scenario and said that restoring the payment with its interim results next year would depend on profits being in line with expectations.
In September, the furniture seller agreed a relaxation of its covenants with its lenders in case of a further market downturn, which would allow leverage to increase to a multiple of 3.9 at the end of December. A leverage ratio of 2.5 remains more than twice the long-term target range of 0.5 to one. Stacey said it might take the company “a couple of years” to bring leverage back down to its target level but that it expected an improvement during this financial year.
The shares, which have lost more than half their value since the start of 2022, were 4p, or 3.5 per cent, higher at 119p in lunchtime trading.