DFS braces for ‘challenging’ year amid Brexit uncertainty

DFS has said this year will be “challenging”, as the furniture group braces for the potential impact of Brexit.

The sofa retailer reported strong like-for-like sales growth of 6.6% in the 22 weeks to December 30.

Group revenue in the period was up 29.1% to £422.3 million, while underlying earnings climbed 23.8% to £32.8 million.

However, chief executive Tim Stacey said recent trading had been softer amid poor consumer confidence levels, which are expected to continue in a “particularly challenging” market during 2019.

“Although identifying underlying growth rates over short-term periods is extremely difficult, we note that year-on-year order intake in the second half of the financial year to date has been lower than the first half,” he said.

“Assuming no further weakening of this environment, our profit expectations for the financial year remain unchanged.”

Other Brexit-related issues which could affect the company include border delays, with just over half of DFS’s finished goods coming in from mainland Europe or China. Any hold-ups could hit profit and cash generation.

Mr Stacey said: “While we have sought to mitigate these, their ultimate impact is uncertain and have the potential to affect our overall financial performance in the year.

“We will continue our preparations to minimise the disruption as part of our regular risk-mitigation process, until the UK and EU’s path forward is clear.”

Online growth was a key driver behind sales, rising 22%.

Meanwhile, like-for-like sales at Sofology were up 14%, and DFS is on track to achieve £4 million of cost savings from its acquisition of the specialist brand.

Analysts at Peel Hunt said the company was a strong player in a difficult market, which could benefit as rivals buckle under the pressure.

“Upholstery hasn’t been the easiest market to trade in for a while, but DFS is getting stronger relative to its peers,” they said.

“Indeed, it may be a while before consumer confidence improves again – who knows? – but we always think of things on a slighter longer canvas and we have already seen the likes of FABB go under.

“Other retailers are struggling for credit insurance, we think, and any further shake out can only be good for DFS.”