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DFS – profit warning, but reckons growth expectations for next year are still “realistic”. Hmmm…

By Steve Moore | Thursday 15 June 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


A “Trading Update” announcement from DFS Furniture (DFS) includes that “we believe our expectations for the next financial year are realistic”. The shares are though currently more than 20% lower at around 200p, with the announcement also updating that “the trading environment has however recently weakened beyond our expectation, with significant declines in store footfall leading to a material reduction in customer orders”. Uh oh.

The company now anticipates current year EBITDA “in the range of £82m-£87m”, with its expectations next year “based on consumer confidence remaining broadly in line with current levels”.

Hmmm. The noted EBITDA compares to a prior year £94.4 million and at the half year stage was up 4.5% on that year’s. This underlines the recent weakening and, though the announcement partly attributes this to “customer uncertainty regarding the general election”, an admitted “uncertain macroeconomic environment” looks set to continue. This suggests clear challenges to growth expectations for next year.

It is also noted “in our half year results announcement on 30 March 2017, we highlighted the expectation of a softer market environment in the second half”. It did mention it, though adding then that it was ‘recognised’ in expectations which “remain unchanged”.

A further reminder then to consider positions carefully when told of expected softer market conditions and also of the present difficult UK consumer environment. DFS concludes “a further trading update will be given on 10 August 2017, following the completion of the group's financial year”, but the noted headwinds (together with the balance sheet which included, at the half-year stage, £135.6 million of net debt) mean this is one I certainly currently avoid.


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