DFS Furniture Plc (LON:DFS) has issued a profit warning as uncertainty over Brexit and the UK general election led to a slowdown in the housing market and weighed on consumer confidence.
The furniture retailer said it now expects full year underlying earnings (EBITDA) to be lower than market estimates at a range of £82mln to £87mln after trading in the second half was weaker than expected.
Shares plunged 21.40% to 198.08p in afternoon trading.
DFS saw “significant declines” in store footfall in the second half, which led to a material reduction in customer orders.
“We believe these demand effects are market-wide, in line with industry indicators, and are linked to customer uncertainty regarding the general election and the uncertain macroeconomic environment,” the group said in a statement.
DFS hit by cooling housing market, UK retail sales slump...
Recent data has pointed a cooling in the UK housing market, hitting demand for furniture. The Office for National Statistics (ONS) on Tuesday reported that house prices rose 5.6% year-on-year in April, easing from the 8.2% seen in July last year following the Brexit vote.
A weaker pound after the UK voted to leave the European Union last June has also pushed inflation higher and weighed on disposable incomes.
As consumers felt the pinch of inflation and lacklustre wage growth, UK retail sales fell 1.2% month-on-month in May, the ONS said.
Furniture retailers were among the worst hit as consumers spent their earnings on essential items and food/
DFS 'realistic' with expectations...
DFS said it believes its expectations for the full year are “realistic” based on consumer confidence remaining weak, given its impact on upholstery demand.
“Notwithstanding this, we have maintained our investment in the business and we are confident that we will outperform the market over the longer term, driven by our scale, business model and proven growth levers,” DFS said.
The group added: “We expect continued strong cash generation that has allowed the recent announcement of a £20mln special dividend in addition to our ordinary dividend.”
Rising inflation and shrinking incomes hit consumer spending...
Neil Wilson, senior market analyst at DFS Furniture, said the company's slowdown in the second half was not surprising given the fact that inflation is rising and real wages are falling. if the gap between inflation and wages continues to widen, then DFS could suffer further as consumer spending takes a hit.
"These are uncertain times for the British consumer, who is shunning big purchases as they tighten the purse strings," he said.
"Undoubtedly the uncertainty around the general election and Brexit means people are delaying big ticket purchases."
AJ Bell investment director, Russ Mould, said: "The squeeze on consumer spending is having a far greater effect on trading than the group anticipated at the half-year stage and it has seen a significant drop in store footfall and a material reduction in orders."