DFS Furniture PLC has reported a significant increase in profits for the first half of its financial year, but warned that demand for sofas is expected to weaken, and rising costs are likely to impact future performance. The company, based in Doncaster, England, expects an adjusted underlying profit before tax of between £16 million and £17 million for the 26 weeks ending December 29, 2024. This marks a strong year-on-year improvement of £7 million to £8 million, compared to £8.7 million for the same period last year.
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However, DFS issued a cautious outlook for the second half of the year, highlighting the anticipated challenges due to economic conditions in the UK. The company pointed to the effects of the budget announcement by Chancellor Rachel Reeves in 2024, which is expected to dampen market demand further. Additionally, DFS is facing rising operational costs, particularly due to an increase in national insurance premiums for employers, a higher national minimum wage, and unexpectedly high interest rates. These factors are putting pressure on margins as the company invests in future growth.
Despite these challenges, DFS remains "cautiously optimistic" about its prospects. CEO Tim Stacey acknowledged that, although the market remains weak, the company has strengthened its position as "the clear market leader." He highlighted improvements in gross margins and reductions in operational costs, which have helped offset some of the external pressures. Stacey also stressed the company's ongoing self-help initiatives, which are aimed at improving efficiency and reducing expenses.
Looking ahead to 2025, DFS remains focused on executing its strategy, but the company is aware of the increased inflationary pressures and less favourable market conditions. Nevertheless, Stacey expressed confidence that the group is well-positioned to generate attractive returns for shareholders once market conditions improve. DFS is maintaining its medium-term target of achieving an 8% profit before tax margin, reflecting its commitment to long-term profitability and growth.
Despite the strong performance in the first half, DFS's stock dropped by 2.9% to 134.00 pence per share following the announcement, as investors reacted to the warning of weaker demand and rising costs. The company's ability to navigate these challenges will be closely watched as it works to strengthen its market-leading position while managing the pressures of a tough retail environment.
Source: www.retail-week.com