DFS warns over profits amid election and Brexit uncertainty

DFS said on Thursday that it would not meet profit expectations for the current year, blaming a dip in demand on customer uncertainty caused by the UK election and concern about the economic outlook.

Its profit warning sent shares in the furniture retailer down as much as 22% in early trading.

Furniture is seen as a “big ticket” discretionary item, and the profit warning will add to evidence that Britons are facing an increasingly tight squeeze on their spending power.

Official data published this week showed British workers’ earnings after inflation shrinking at the fastest pace since 2014.

DFS said the trading environment had weakened more than it had expected recently, with significant declines in store footfall leading to a “material reduction” in customer orders.

“We believe these demand effects are market-wide, in line with industry indicators, and are linked to customer uncertainty regarding the general election and the uncertain macroeconomic environment,” it said.

The firm said it now expected to make core earnings of £82m to £87m for its year to the end of July. Analysts were previously forecasting £96.1m, according to Reuters data, up from £94.2m in 2015-16.

DFS said it has maintained its investment in the business and was confident of outperforming the market over the longer term.

“We believe our expectations for the next financial year [2017/18] are realistic based on consumer confidence remaining broadly in line with current levels, given its consequent impact on upholstery demand,” it said.

“While it is possible DFS will bounce back … we expect investors to be cautious in the short term,” said analysts at Jefferies, who nevertheless maintained their “buy” recommendation.