DFS drops profit guidance as Red Sea crisis continues to cause delays

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DFS has reduced its profit guidance on recent trading as it continues to be affected by ongoing Red Sea disruption.

DFS store exterior

DFS has dropped its profit guidance due to Red Sea disruption

The furniture retailer announced at its interim results in March that it expected revenues of £1,000m- £1,015m and profit before tax to be in the range of £20-125m, with an “additional profit risk of up to £4m” if shipping delays in the Red Sea continued throughout the year.

It has since announced that it expected profit before tax to be between £10-12m ahead of its results from the 53 weeks to June 30.

Revenues for FY24 are expected to fall between the range of £995m-£1bn.

DFS said in a statement to the stock exchange: “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.”

The reduction in profit forecasts is being driven by a “lower level” of delivered customer orders, with £12-14m of delayed deliveries from the Red Sea disruption. These deliveries are expected to move into the next financial year.

DFS also cited higher shipping costs as a result of increasing freight rates being above expectations and a weak upholstery market that affected profit performance.

The retailer added that, despite these issues, it has grown its full-year gross margin rate and reduced operating costs, which are expected to be down “approximately £25m year on year”, which has limited the lower sales impact on profitability.

DFS said it has been “encouraged” by an improving trend in group order intake and expects to keep making progress.

It said: “While 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 FY25 period.

“We are well placed to capitalise on any market recovery given our market leadership position, the operational leverage in the business and the progress we are making on our cost base.”