DFS has warned shareholders that the monthly increase in orders it has seen in September will have to continue for the rest of the financial year if it is to avoid a double-digit sales decline.
It presented shareholders with three scenarios, in which profit before tax and brand amortisation would be between £20m and £54m, based upon assumptions of an average market order volume decline relative to pre-pandemic levels of between -15% and -5%.
‘The £36m profit before tax and brand amortisation outturn in our medium scenario is based upon a market-wide like-for-like order intake volume decline of 10% relative to pre-pandemic levels. It is hard to extrapolate short-term trends into the future, and there are some transient factors likely to have particularly impacted demand over the summer, including consumer uncertainty on domestic energy prices, re-opening of holiday travel and the hot weather,’ it says.
‘However, the -5% and -10% scenarios would require a continuation of September’s recovery from the weaker average trading patterns observed in July and August.
‘We are targeting cost opportunities on property, supply chain and administrative activities, created by the scale benefits of ongoing DFS and Sofology brand alignments and volume growth relative to pre-pandemic levels. Furthermore, we have been reassured to date by consumers’ relative tolerance of any necessary price increases to offset inflation and the revenue benefit of the sustained c3% points of market share that we have captured since FY19. These factors, together with the over a £30m elevated order bank entering the financial year, will provide some insulation to our short-term profit expectations.’
‘The UK furniture market continues to be challenging and the outlook for the sector remains uncertain given the macroeconomic environment. From the fourth quarter of the year, we saw a reduction in the volume of orders, which we believe is consistent with the overall furniture retail market, although our elevated order bank will provide some resilience as we enter our 2023 financial year,’ says Tim Stacey, DFS group ceo.
‘In previous challenging environments DFS has performed resiliently and strengthened its market position, by leveraging its fundamental strengths in brand equity, manufacturer access, store sales densities, scale of operations and flexible cost base. In the face of the current slowdown in the market, I am confident that we will emerge stronger.’
