DFS Furniture expects Brexit to hit consumer demand

By Noor Zainab Hussain and Tanishaa Nadkar

(Reuters) - DFS Furniture (DFSD.L) warned on Thursday of a challenging consumer market before Britain leaves the European Union after reporting a significant drop in annual profit, hurt by a heatwave that kept people out of stores.

"Overall we expect the market to remain subdued into 2019, constrained by political risk and weak consumer sentiment," Chief Executive Officer Ian Filby said in a statement.

Recent surveys showed British consumers were worried about Brexit. Sofas are seen as a discretionary "big ticket" purchase and the fall in the value of the pound and a squeeze on wages has led Britons to cut back on non-essential items.

"The group continues to face a particularly uncertain UK consumer market in the run up to Brexit in March next year," said DFS, which earns 97 percent of its money from the UK.

DFS said it was working to offset the likely impact from Brexit, including volatility in demand and delays at borders, with just over half of finished products sold by DFS being imported into the UK from mainland Europe or China.

"We are trialling ways to accelerate the movement of goods internationally to mitigate some of these impacts," said DFS, which has more than 100 stores across the UK and Ireland.

The upholstery retailer, founded in 1969, reported a 48.5 percent fall in pretax profit to 25.8 million pounds in the year to July 28. It had warned in July that profit would decline.

Shares in DFS fell 10 percent in early trade but clawed back some of their losses to trade down 1.9 percent at 206 pence at 0905 GMT in a very volatile session.

Graphic: UK retailers hit by falling consumer confidence (https://tmsnrt.rs/2OzO21f)

FEELING THE HEAT

Filby told Reuters that the hottest summer in decades stopped Britons from making their usual trip to retail parks on the edge of town on weekends to buy furniture.

"When you have the sort of record conditions that were last seen back in 1976, Britons go to the sea, they go to parks, they have barbecues and therefore we had a very suppressed last three months of the year," he said.

DFS, which entered continental Europe with its first store in the Netherlands in 2014, said the market had recovered, with growth in like-for-like orders for the first nine weeks of its latest financial year.

Filby cautioned that this was part of a "bounce back", which would last another month or so, before returning to a subdued trading level.

DFS however, expects growth in its bottom line after factoring in the downturn.

(Reporting by Noor Zainab Hussain and Tanishaa Nadkar in Bengaluru; Editing by Bernard Orr and Keith Weir)