Middle East war and weak markets prompt DFS to slash profit forecasts

Furniture retailer, DFS, has slashed its performance forecasts amidst continued Houthi attacks on shipping in the Red Sea and a slump in consumer demand.

In its interim results update on 19 March 2024, the Doncaster-headquartered business says it expected revenues of £1,000m-£1,015m and pre-tax profits of £20m-£25m, with an additional profit risk of up to £4m if Red Sea shipping delays continued through to the company’s year end date.

But today, in an update on trading for the 53 week period to 30 June 2024, DFS warns it now expects its pre-tax profits to fall to around £10m-12m, with FY24 revenues anticipated to be £995m-£1,000m.

It attributes this to a fall in delivered customer orders, with £12m-14m worth of delayed deliveries from Red Sea disruption caused by attacks on cargo ships from Houthi dominated Yemen.

DFS warns those deliveries are now expected to move into FY25.

The business adds that consumer demand in the upholstery sector has declined about 10% in volume terms year-on- year from a weak starting point, bringing overall market demand levels to “record lows.”

DFS says it has worked to mitigate the impact of these problems, noting that it has continued to operate through the period with record value market share of over 38.5%.

In addition, the company has reduced its operating costs, which are expected to be down approximately £25m year- on-year.

DFS’s trading update states: “Together these have limited the lower sales impact on our profitability. 

“Whilst the economic outlook remains hard to predict we expect the widely predicted lower inflation and interest rate environment to have a positive impact on upholstery market demand levels, with the declines experienced across the last three years starting to reverse and the market slowly recovering in our FY25 period.

“We are well placed to capitalise on any market recovery given our market leadership position, the operational leverage in the business and the progress we are making on our cost base.”