Retailer DFS has reported a big slump in profits and warned that the industry is facing a downturn as soaring bills mean fewer customers are in the market for a new sofa.
The business said pre-tax profit dropped 43% to £58.5 million in the financial year that ended in June.
Order numbers “softened markedly” in the last three months of that period as the cost-of-living crisis weighs on customers.
It was a grim year for the sofa seller, boss Tim Stacey said.
This has been the most operationally challenging year that we can remember
Tim Stacey, DFS
The firm faced several different issues fed in part by the pandemic, Brexit and the war in Ukraine.
“This has been the most operationally challenging year that we can remember, with industry-wide Covid-related supply chain issues, double-digit cost inflation on raw materials and ongoing colleague absence and skill shortages,” Mr Stacey said.
The company warned that sales volumes across the industry could slump by 15% in the current financial year compared with pre-pandemic levels.
That would slash its profit to as little as around £20 million, even as the business said that its revenue would continue to grow.
That is the worst-case scenario that DFS presented to shareholders.
But perhaps more worrying for investors is the best-case scenario: a 5% drop across the industry.
Even this – the most positive outlook – would see DFS profit fall to around £54 million for the year ending next June.
It is a rough forecast, which saw the company’s shares drop around 13% shortly after markets opened in London.
The business said it had “carefully absorbed” double-digit increases in costs into its prices.
“Looking forward, the UK furniture market continues to be challenging and the outlook for the sector remains uncertain given the macroeconomic environment,” Mr Stacey said.
“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.”