DFS Furniture posts strong H1 profit but cautions on market pressure ahead

Investing.com — DFS Furniture (LON:) on Friday reported strong first-half results driven by market share gains, cost savings, and improved gross margins.

Shares of the furniture retailer was up 1.3% at 05:08 ET (10:08 GMT).

For the twenty-six week period ending December 29, 2024, the company expects its group profit before tax to be in the range of £16-17 million, marking an increase of approximately £7-8 million compared to the same period last year. 

“Although a number of factors (comps, macro, NIC/NLW) combine to leave FY25 PBT
guidance unchanged at this stage, we think DFS is in a strong position,” said analysts at Jefferies in a note. 

This boost in profit comes as the Group saw a 10.1% year-on-year rise in order intake, supported by growth initiatives and market share gains for both of its brands, DFS and Sofology. 

Sofology, in particular, continued its strong performance with a 19.1% increase in order intake.

Despite a challenging market backdrop, gross delivered sales are expected to have risen by 1.4% year-on-year, aided by a strengthening order bank and continuing delays in Red Sea shipping. 

Improved operating efficiency helped offset rising costs, including higher national insurance contributions and wages.

As a result, DFS managed to reduce its net bank debt to £117 million, improving its leverage ratio from 2.5x to 1.7x compared to the previous financial year.

Profit growth is expected to be front-loaded, with the company issuing a cautious outlook for the remainder of the year

The company pointed to a number of factors contributing to its cautious outlook, including a less optimistic view on market demand in the second half of the year, largely due to the anticipated impact of the UK government’s post-budget economic policies. 

“While the market remains relatively subdued, we are continuing to deliver on our self help initiatives having strengthened our position as the clear market leader, improved our gross margin and reduced our operating costs, all of which have helped us to deliver year on year profit growth,” said Tim Stacey, group chief executive at DFS Furniture in a statement.

The company also expects gains from competitor disruptions in the first half to partially reverse in the second half. 

Furthermore, higher operational costs are expected in the second half, driven by rising national insurance contributions, the national living wage, and higher-than-expected interest rates.

Despite these pressures, DFS expects full-year profits and cash flow to remain in line with current market expectations.

Trading during the Winter Sale met expectations, but DFS remains cautious due to economic challenges.

“We continue to see significant scope for margin upside as the market improves, and reiterate Buy,” Jefferies added.