DFS axes dividend after swinging to a loss as money owed climb

DFS Furniture has axed its dividend after swinging to loss after Red Sea shipping disruption and ‘record low’ demand hammered the homeware firm’s bottom line.

The group, which has been forced to issue two profit warnings this year, posted a pre-tax loss of £1.7million for the year to 30 June, compared to a £29.7million profit in the previous 12 months.

Bosses said the ‘disappointing’ results are an ‘inevitable result of the market backdrop’, which has forced DFS to slash its dividend and sharply increase its borrowing.

Sofa slump: DFS suffers sharp contraction in consumer demand 

The firm said consumer demand had suffered ‘significantly’ over the last year, ‘driven by the cost of living crisis’, adding that the decline ‘was beyond our initial expectations with overall demand levels reaching record lows’.

Boss Tim Stacey reassured shareholders that ‘recent improvements in housing transaction data and strengthening consumer balance sheets’ will ‘lead to increased upholstery market demand’ in the coming year.

Revenues from continuing operations slumped 9.3 per cent over the period to £987.1million on the back of lower order intake and the impact of shipping disruption.

The group also said Bank of England interest rate hikes had meant the cost of providing interest free credit had increased. DFS allows customers to spread the cost of new furniture via monthly payments with no set up fee, deposit or interest.

Stacey said: ‘It is clear that the upholstery market has a long road to recovery given the 20 per cent decline on pre-pandemic levels that we have seen.

‘Despite the challenges we have faced, we remain confident that the business is well positioned to capitalise on market recovery.’

Net bank debt increased by 17.5 per cent over the year to just shy of £165million, as its leverage as an expression of debt to earnings increased from 1.9x to 2.5x.

As a result, the group will offer no full-year dividend to shareholders.

DFS, which declared an interim ordinary dividend of 1.1p per share earlier this year, said this was ‘in the best long term interests of the group’.

Shore Capital analyst Clive Black said the results would make ‘grim reading’ for DFS investors, but are reflective of ‘the impact of an especially weak British discretionary goods market in 2024’.

DFS shares fell by almost 5 per cent at the open before rebounding to trade 2.4 per cent higher at 117.75p by mid-morning. Their value has fallen by 1.6 per cent since the start of the year but are up 4.2 per cent over the last year.

Black said: ‘DFS has maintained service levels… gained market share and is well positioned should market conditions improve, [but] probably needing further base rate cuts and the absence of a total car crash Budget.

‘In being down 5.5 per cent [year-to-date], the market is signalling trough earnings, with which we concur, DFS should, therefore, be on any positive watch list.’