The biggest sofa retailer in Britain has suffered a loss due to a combination of sluggish sales, delays on Red Sea shipping and increased debt costs. DFS Furniture reported that it had lost £1.7 million before tax for the 53-week period ending in June. This is a sharp drop from the profit of £29.7 millions a year ago. The company’s revenue dropped by 9 percent to £987 millions, down from £1.09billion, and was lower than the range of £995mil to £1billion that it had predicted in June. It has issued two profit warnings in the last 12 months . The company has struggled with a drop in spending by consumers on large-ticket items.
Tim Stacey said that a weaker consumer’s confidence and a slower housing market have weighed down on demand. The trade disruptions in the Red Sea that had caused shipping times to increase from 10 weeks to 12 weeks are also not improving. Stacey, a 53-year-old woman, reported that freight rates were more than twice as high as the previous year.
He said that there were “some flickering signals of recovery” as the housing market started to recover. The “mid-single digit” drop in sales volume last year was less severe than the 10 percent fall in the upholstery industry. The fourth quarter orders were up 9 percent year-over-year. This included an increase in average order value, as customers upgraded their purchases. Stacey predicted that sales would grow this year and help boost the gross margin.
DFS has undertaken a series of cost-saving measures to try and mitigate the sales decline. This includes closing one of three of its manufacturing sites, as well as one of two of its wood mills. Peel Hunt analysts, the housebroker, forecast revenue for this financial year of PS1.04bn and a profit before tax of £22m.
The company decided not to declare dividends to help protect itself against a “severe, but plausible” trading scenario. It said that the decision to reinstate payment in its next interim results would be dependent on whether profits were as expected. DFS, a seller of sofas made to order, has shut one of its three production sites
In September, a furniture retailer agreed to relax its covenants with lenders in the event of another market downturn. This would allow leverage to reach a multiple of 3,9 by the end of the year. A leverage ratio of 2,5 is still more than double the target range for long-term, which is 0.5 to 1. Stacey stated that the company may take “a few years” to reduce leverage to its target range, but it expects an improvement in this financial year.
The shares have gained 7 1/2p or 6.6%, closing at 122 1/2p.
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