Shares in DFS Furniture PLC (LSE:DFS) climbed 5% on Thursday after the sofa retailer raised its profit guidance on the back of stronger sales and successful efforts to cut costs.
Full-year sales rose 5.8% in the 12 months to June, ahead of City forecasts of 4.1%, marking the group’s first annual revenue growth in two years.
Shore Capital analyst David Hughes said the improvement was underpinned by a sustained increase in customer orders across both DFS and Sofology, up 8.7% and 16.2% respectively.
Profits are also on the up. DFS now expects adjusted pre-tax profit for the year to come in slightly above its earlier guidance of £25–29 million.
According to Hughes, this points to a £20 million improvement on the previous year, helped by cost reductions, better product margins, and falling interest charges.
Operating profit margins have improved to around 3%, though DFS is still aiming for a medium-term target of 8%.
The company has also made headway in cutting its debt, reducing borrowings by around £60 million to £107 million. That has brought its debt ratio down from 2.5 times earnings to roughly 1.4 times.
Hughes said further cuts to interest rates by the Bank of England could benefit DFS by making interest-free credit cheaper to offer customers and by giving shoppers more confidence.
While Shore Capital does not issue a formal rating on the stock, Hughes noted that the shares could look increasingly good value if profits continue to recover.
The stock rose 10p to 175p.