DFS profits to be impacted by 'challenging' market
However, an increase of 7% in first half revenue means that it achieved growth of 1% across the full year.
Consequently, the company said EBITDA for the year will be at the low end of the £82-£87 million range previously given, with revenue impacts being partly offset by cost flexibility and the early benefits of operating efficiency initiatives.
DFS announced in June that revenue in the second half had been weaker than expected owing to significant declines in store footfall and customer orders across April, May and June.
In a pre-close trading update today, DFS said: “We believe this to be an industry-wide issue, resulting from the uncertain economic environment and unexpected general election, exacerbated by warm weather in May and June. Our summer sale, however, started satisfactorily in July, consistent with trends we have seen in offline and online sector indicators.”
Despite the “challenging” UK market, DFS said it remains focused on its growth strategy to deliver substantial long-term returns for shareholders. It said revenue growth is likely to be harder to achieve in the short term but is has identified opportunities to drive operating efficiencies and product margin growth. It has also refinanced on more favourable terms which will deliver an annual saving of approximately £1 million in the cost of the company’s debt financing.
DFS has maintained its programme of opening new 10-15,000 square foot stores in the UK and Republic of Ireland with Ashford opening in April 2017. Its pipeline for the new financial year includes new stores in Wednesbury, Rugby and Haverfordwest, together with the refurbishment and relaunch of the DFS store in Croydon. It also plans to open a further store in a smaller format of around 5,000 square feet.
Following two new store openings in The Netherlands during the year, DFS now has five stores in the country and plans to add a sixth at Eindhoven shortly.
Looking ahead, the company said: “We intend to maintain our plans for growth investment, and are confident that this will allow us to continue to outperform the market over the longer term. DFS has historically capitalised on adverse market conditions to build our position in the UK market for living room furniture, leveraging our fundamental strengths in store sales intensities, scale of operations, flexible cost base and vertically integrated business model.
“The board therefore continues to believe that the group enjoys excellent long-term prospects to deliver profitable growth, strong cash generation and attractive shareholder returns as one of the UK's best-known brands, a major British manufacturer and the country's leading retailer of living room furniture.”
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