Invariably, the performance of retailers like DFS Furniture (DFS) is bound up with the credit cycle and related levels of consumer confidence, so even though the Doncaster-based group said recent order patterns were positive, the trading outlook is now far from assured. DFS noted that overall trading in the second half has started “satisfactorily”, but it has seen a change in customer footfall in the last few days due to the coronavirus outbreak. Analysts at Peel Hunt said that sales could be down by 10 per cent for an extended period.
Investors clearly concur with the broker view. The shares were marked down 7 per cent, against a 0.5 per cent decline for the FTSE Small-Cap index, as DFS revealed falling interim sales and a sharp decline in reported profits, the latter the result of a tripling in the depreciation charge. The good news is that the gross margin was in line with the previous half-year, while selling and distribution costs pulled back proportionately.
The Sofa Workshop business was hit by costs relating to a move to a shared infrastructure, as well as weak market conditions. Sales dropped by around 30 per cent, which resulted in a £2.4m fall in the division's contribution in the first half. However, the group’s online channels performed well: gross sales were up by 4.5 per cent to £117m. It is not hard to understand why the retailer is spending £2-3m a year on digital, according to chief executive Tim Stacey.
Peel Hunt forecasts adjusted EPS of 12.1p and pre-tax profits of £32.5m in 2020, compared with 18.4p and £23.6m in 2019.
| DFS FURNITURE (DFS) | ||||
| ORD PRICE: | 194p | MARKET VALUE: | £ 413m | |
| TOUCH: | 188-204p | 12-MONTH HIGH: | 302p | LOW: 188p |
| DIVIDEND YIELD: | 4.8% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 96p* | NET DEBT: | £672m** | |
| Half-year to 29 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 518 | 35.3 | 13.1 | 3.7 |
| 2019 | 488 | 15.9 | 6.0 | 3.7 |
| % change | -6 | -55 | -54 | - |
| Ex-div: | 28 May | |||
| Payment: | 17 Jun | |||
| *Includes intangible assets of £541m or 254p a share **Includes lease liabilities of £525m | ||||
