Furniture specialist DFS has warned that its full-year profits will be at the lower end of its previous guidance, despite achieving “record market share” and higher average order values.
In a trading update for the 26 weeks to December 25, 2022, DFS posted a 16.2% decline in underlying profit before tax year on year to £7.1m. Profit before tax fell 16% from £22.8m to £6.8m.
The retailer posted revenues of £544.5m, a 2.2% drop from the previous year, despite being up 9.4% on a pre-pandemic comparison.
DFS said its cost headwinds are “abating and profit margins are expected to improve” in the second half of the year, and said it remains confident in the plans it has in place as well as its “ability to achieve the financial performance targets” set out.
The business also said it achieved its “record market share” with a 2% increase to 38% and it received higher average order values, which it attributed to its “appeal to a wider audience”.
DFS chief executive Tim Stacey said: “I’m pleased to report that the group has extended its long track record of achieving market share gains in a challenging market to what are now record levels.
“We expect our profit for the year to be between £30m-£35m in line with external expectations.
“The share gains have gone some way to alleviating the impact of the weaker market we have observed in 2022 overall. Those gains built throughout the period with the group delivering strong order intake growth in the second quarter. The order intake momentum has continued through the important winter sale period.
“Profit margins have reduced over the last year due to a combination of significant cost increases and our commercial strategy to ensure that we continued to offer great value for customers in an environment where consumer discretionary spend was under pressure.
”We have however improved our gross margins in the first half of this year from H2 of FY22 and further still in the second half to date through product innovation and selected retail price increases. Cost headwinds are reducing and in some cases reversing and we expect our upward gross margin trajectory to continue as we execute our margin build-back plan.
“At our capital markets day in March 2022, we set out our ambitions to grow revenues to £1.4bn and operate at an 8%-plus PBT margin generating post-tax free cash flows of 75%-plus. We continue to target that level of financial performance and have solid plans in place to deliver this.
“Our disciplined approach to investment, data-led innovation, entrepreneurial culture, scale advantages and strong operational execution will support a continuation of our long-term trend of market share growth.”
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