DFS alerts over profits amid weak sales and Red Sea shipping woes

The group said shipping woes in the Red Sea has delayed £12 million to £14 million of deliveries, meaning these will now be pushed into the next financial year.

Higher shipping costs due to the disruption are also impacting the firm, as ships are having to take a lengthy detour to avoid the vital Suez Canal trade route amid attacks by Houthi rebels on cargo containers.

This is adding to the hit from weak demand for so-called big ticket items such as upholstery from more cautious shoppers, which has seen the group use incentives to boost orders.

It cautioned that sales are now expected at around £995 million to £1 billion in the year to June 30, while the retailer now forecasts annual underlying pre-tax profits to fall by between £10 million to £12 million.

It previously reported underlying pre-tax profits of £30.6 million in 2022-23.

DFS had already slashed guidance in March, saying it expected annual revenues to fall to between £1 billion and £1.02 billion and underlying pre-tax profits to drop to £20 million to £25 million.

DFS said: “Since that update, consumer demand in the upholstery sector has remained challenging and Red Sea routing issues have persisted, resulting in delays to customer deliveries and higher freight costs.”

Consumer demand in the upholstery sector has hit record lows, dropping 10% by volume, according to DFS.

But the group said it had seen a pick up in trade over its final quarter, with orders up 9%, although this is against weak comparatives from a year ago.

The firm has also looked to drive sales by strengthen the product ranging and pricing in its Sofology brand, while also reintroducing four-year interest free credit deals “at select times to maximise revenue and profit in this difficult trading environment”.

It added: “Whilst the economic outlook remains hard to predict, we expect the widely predicted lower inflation and interest rate environment to have a positive impact on upholstery market demand levels with the declines experienced across the last three years starting to reverse and the market slowly recovering in our 2024-25 period.”