DFS Furniture (LON:DFS) said full year earnings will be at the lower end of its guidance range after a weaker-than expected second half, sending its shares into the red.
Shares fell 5.53% to 217.75p in morning trading.
The furniture retailer reported a 4% fall in second-half revenue compared to the year-ago period on the back “significant” declines in store footfall and customer orders between April and June.
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DFS blamed uncertainty around the snap UK general election, an unclear economic outlook and warm weather, which resulted in fewer people at stores.
The drop in second half revenue compared to a 7% increase in the first half, resulting in a 1% increase for the full year.
“Consequently, EBITDA (underlying earnings) for the year will be at the low end of the £82-£87mln range previously given, with revenue impacts being partly offset by cost flexibility and the early benefits of operating efficiency initiatives,” the group said.
Challenging UK furniture market
The company said the UK furniture market has been challenging with the outlook still uncertain. But it believes it had made good progress in its growth strategy, including the roll out of stores in the UK and Ireland as well as the acquisition of Sofology.
DFS announced it was buying smaller rival Sofology for £25mln last week. The group also agreed a partnership with Joules to manufacture their first sofa collection for the lifestyle fashion brand’s homewares division.
Following a refinancing of its debt, announced last week, DFS expects to deliver an annual savings of £1mln.
DFS issued a profit warning in June, sending its shares down 20%, as British consumers shun big purchases due to a squeeze on disposable incomes from rising inflation.
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“DFS has lots of excuses for its lacklustre performance: it’s operating a ‘challenging market’ in an ‘uncertain economic environment’ and the ‘unexpected general election’, not to mention the warmer weather in May and June,” said Neil Wilson, senior market analyst at ETX Capital.
“Certainly consumer spending, which was remarkably robust in the six months after the EU referendum, has started to suffer. Sofas are probably the first to suffer as they require a commitment from the buyer to pay a certain amount each month.”
Wilson, however, welcomed the acquisition of Sofology. He said it was a complementary peer that offers good optionality and broadens the appeal of DFS, as well as strengthening its omnichannel offering.
“And cash is not a problem for now – it’s generating plenty and on the already declared dividend it can offer investors a yield of more than 4%.”