DFS share price falls as it warns investors of ‘volatile’ political backdrop
DFS posted strong sales growth for its latest financial year today but also warned future earnings could suffer from uncertain economic outlook.
Read more: DFS doubles profit but warns of ‘challenging’ 2019
The sofa giant revealed that online sales growth hit 17 per cent in the 12 months to the end of June, with underlying gross sales growth of seven per cent.
Underlying profit is expected to hit just over £50m, beating last year’s £38.3m bottom line.
The retailer also appointed a new chief financial officer in Mike Schmidt, who had served in the role on an interim basis since predecessor Nicola Bancroft retired in April.
DFS said it is making “encouraging progress” on its ongoing strategic transformation. Meanwhile 2017 acquisition Sofology has continued to perform robustly with strong like-for-like sales, the company said.
However, the business warned that wider economic and political uncertainty could hurt shoppers’ appetites for new furniture, while like-for-like sales growth across all brands was helped by underwhelming performance last year.
“We remain mindful of the risk that the volatile political and economic backdrop may further impact on already low consumer confidence levels,” DFS said.
“Our progress in the near term will inevitably be somewhat dependent on this backdrop. In addition, as previously noted, the first half of our 2018/2019 financial year benefited from additional demand from purchases deferred from earlier periods.”
DFS’ share price fell 3.8 per cent on the warning as investors feared the impact of a possible no-deal Brexit on the retailer’s fortunes.
Nevertheless, Peel Hunt described today’s trading update as “pleasing in every respect”.
“Yes, the weather and backdrop have been very helpful in the last few months but an acceleration in group bricks and mortar like-for-likes on H1 (when it was a pretty good 3.6 per cent) is the stuff of decent market share gain,” the broker said.
“Sofology has continued in double digit LFL as the advertising campaign boosts awareness, and if it wasn’t for the unpredictable and worrying macro situation, we would be even more upbeat. For now we stick with forecasts and the price target but today’s statement is testament to the fact that is this an absolute core holding.”
Tory leadership frontrunner Boris Johnson has pledged to deliver a “do or die” Brexit by the 31 October departure deadline.
That would see the UK leave the EU whether or not it has a withdrawal agreement.
DFS’s warning came as Ocado boss Tim Steiner admitted his grocery firm cannot prepare for even a short delay at ports in the event of no deal.
“You can’t take any precautions really,” Steiner told BBC Radio 4’s Today Programme this morning.
Read more: Why Britain must prepare for a ‘low growth economy’
“We run our business on around a week of inventory in total. So to buy a week of inventory we would have to double the size of our facilities and our facilities are full so we’d have to buy replica facilities for that one week. It’s just not possible.”
Main picture credit: DFS