Shares in DFS Furniture PLC (LSE:DFS) rose 4% on Thursday after the UK sofa retailer posted a sharp rebound in annual profit and cut its debt, easing investor concerns about the housing-linked sector.
For the year to June 29, DFS reported underlying pre-tax profit of £30.2 million, up from £10.5 million a year earlier and slightly above guidance.
Reported profit swung to £32.9 million from a £1.7 million loss. Revenue increased 4.4% to £1.03 billion, while gross margin expanded by 70 basis points to 56.5%.
The group also generated £57.8 million of free cash flow, reducing net bank debt to £107 million from £165 million and lowering leverage to 1.4 times. However, with borrowing still above its target range, the board withheld a dividend.
Chief executive Tim Stacey said the company’s “customer proposition has never been in better shape,” pointing to record customer satisfaction scores and efficiencies in manufacturing and logistics.
Despite consumer confidence remaining weak, DFS said trading in the new financial year was in line with expectations and forecast profit growth in 2026, underpinned by further margin improvements and cost discipline.
Longer term, it reaffirmed its target of £1.4 billion revenue and 8% margins.
Peel Hunt said the performance was in line with market expectations. "We make no changes to forecasts today, but see consensus numbers as underpinned, bar another political bombshell," the broker added, repeating its 'buy' advice.
"We expect DFS to continue to home in on its long-term targets, and believe anything resembling delivering them would see the shares do really well."
Panmure Liberum noted that "leverage is falling rapidly, creating scope for dividend payments to resume".
It repeated its 'buy' call with a 300p price target. In early trading, the stock was changing hands for 155.5p, up 5.5p.