Furniture retailer DFS has upped its full-year profit forecast, saying it has not seen any fall in demand for its products despite the Brexit vote.
However, Britain’s biggest sofa chain warned that the EU referendum vote meant furniture retailers faced an “increased risk of a market slowdown with additional cost pressures from foreign exchange movements”.
Although DFS has not seen any impact on demand so far, it admitted that “the six weeks since 23 June is too short a period to permit a meaningful assessment of future furniture retail trends”.
The chief executive, Ian Filby, said any impact was likely to be limited. “We’ve been encouraged by the momentum so far. Unless you get a major economic hit like the credit crunch you find it’s quite a resilient market.”
He noted that retail consultancy Verdict was predicting 3% growth per annum for the UK upholstery market. “Although it’s an important purchase it’s not like buying a house. Every six to seven years people want to refresh their living room.” He said people buying furniture when moving house accounted for less than a fifth of the UK sofa market.
Cost pressures caused by the weaker pound were also likely to be limited, he said, because DFS makes many of its sofas in Derbyshire, Nottinghamshire and Yorkshire and buys most materials here, with a quarter of products sourced from Asia, in particular leather goods.
Speaking from the Olympics in Rio, Filby said the company was hoping to become a more appealing brand through its sponsorship of Team GB. But he admitted the Games were a distraction, saying: “At times the Olympics can take people away from doing their sofa shopping.”
DFS, which returned to the London stock market last spring after a 10-year absence, reported a 7% rise in revenues for the year to 30 July, with second half revenues also up 7% from a year earlier. The group now expects to deliver results at the top end of forecasts. The City is predicting revenues of up to £755.5m and pre-tax profits of up to £64.6m.
Revenues have been boosted by the acquisition of Sofa Workshop and Dwell, store openings and improvements to the website, where sales are growing by double digits. The Doncaster-based company has 112 shops – 105 in the UK and the rest in Ireland, the Netherlands and Spain.
Stripping out acquisitions and store openings, DFS’s like-for-like sales were estimated to have risen 4.5%.
UBS analyst Andrew Hughes said: “DFS has faced difficult conditions before and handled them well. It has high sales densities, scale benefits, high margins, an element of vertical integration with its UK factories, and a very flexible cost base. Sterling weakness is likely to see cost inflation across the market once hedging expires at the end of 2016, but with 45% UK supply DFS is less exposed.”
