DFS trading 'significantly ahead' of expectations

(Sharecast News) - DFS Furniture said on Tuesday that it was trading "significantly ahead" of its expectations amid strong demand but struck a cautious note on the outlook due to Covid-19 and Brexit-related uncertainty.
The furniture retailer said that since its last update on 14 July, it has continued to trade strongly both online and in its showrooms, with year-on-year order intake growth over the last six weeks equivalent to around £70m of revenues.

"This trading is significantly ahead of our initial expectations and is in addition to our previously announced strong opening order book that will generate a further in year revenue benefit of circa £100m," it said.

DFS put its performance down to consumers spending more on their homes relative to other sectors, pent-up demand caused by the coronavirus lockdown and its hybrid digital and physical retail offering, which it said was "particularly relevant" in this consumer environment.

Although the financial year has started strongly, DFS highlighted significant uncertainty related to Covid-19 on UK consumer confidence and the potential impact of Brexit and said it was "exceptionally difficult" to assess the outlook beyond the short term.

"While positive trading momentum currently remains we do note that some consumers may be bringing forward spending decisions and this may impact trading later in the financial year.

"Notwithstanding these risks, recent trading and our current momentum does increase our earnings resilience and it has significantly strengthened our financial headroom. Furthermore, the board continues to have confidence that the business is well-positioned to capitalise on opportunities as its markets recover."

At 0925 BST, the shares were up 16.5% at 174.80p.

Russ Mould, investment director at AJ Bell, said: "A boom in sofa sales makes perfect sense. Many businesses helping to improving the home environment, such as DIY and electrical retailers, have seen a pick-up in sales during lockdown this year as people seek to improve their home comforts. DFS is also among the beneficiaries. After all, if you're going to spend so much time at home, why put up with tatty seats, peeling wallpaper and fridges on the blink?

"This situation has put home-based product sellers in a sweet spot. But what happens now that more people are starting to return to work in offices, shops and on-location sites? It shifts the attention away from the home and perhaps pushes home improvement tasks back on the 'to do list' that never gets done.

"The other issue to consider is rising unemployment and how that might affect sentiment towards big ticket purchases. News headlines of job losses can make people worried about their own job security and dampen enthusiasm to want to spend hundreds of pounds on something."

Mould said DFS has effectively had an early Christmas present and possibly seen a boost normally associated with Boxing Day and New Year sales.

"A flare-up in coronavirus cases during the autumn and winter could potentially sustain the current sales momentum if people are encouraged to stay working from home, but one has to wonder if DFS has already seek its peak earnings season this year," he said.