It doesn’t take a genius to see that things have gone horribly wrong at DFS. While the first 5 or so months of the year saw the stock on a bit of a tear, climbing to a 7 month high of £2.85 by early May, since then it has suffered, at one point hitting an 11 month nadir of £1.90 in mid-June. DFS Furniture PLC (LON:DFSD) now sits at a current trading price of £2.17.
Befitting its rise, the company’s first couple of updates were very strong. In February it revealed a 7% rise in first half sales, before posting a 3.1% increase in H1 pre-tax profit to £16.7 million at the end of March, while hiking its interim dividend by 5.7% to 3.7p per share.
By mid-June, however, the sofa stock was in the skip, after issuing a profit warning that wiped away 20% in value in single session. DFS blamed the general election for ‘significant declines in store footfall leading to a material reduction in customer orders’, stating that it now expected full year earnings to come in between £82 million and £87 million, far lower than the £94 million forecast by analysts.
Interesting a month and a half later DFS bought smaller rival Sofology for £25 million, suggesting things were looking up for the company. Well, that idea was swiftly swept aside on the 10th August, as DFS announced that second half revenue had fallen 4% year-on-year (leaving it with a 1% rise in annual group revenue). Even worse, it said that because of that decline, earnings would be at the lower end of the previously stated £82 million to £87 million target.
That string of woeful updates does mean that the bar is incredibly low ahead of next week’s annual results. If DFS can manage to scrape together earnings a bit above £82 million, and show it’s seen some kind of improvement in sales in the last month or so, investors may be willing to tentatively get back on board. That’s a lot to ask, however, of a firm stuck in the uncertain territory of the UK retail sector, especially one that deals in big ticket items.
DFS Furniture PLC has a consensus rating of ‘Hold’ with an average target price of £2.48.
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