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DFS Furniture – earnings “at the low end” of a range given less than two months ago...

By Steve Moore | Thursday 10 August 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.


Following a June profit warning which saw them down to 200p, shares in DFS Furniture (DFS) had recovered to above 230p. They are currently though back below 220p on a “Post-Close Trading Update”

This is for the company’s year ended 29th July 2017 and includes its summer sale “started satisfactorily in July”. However, following an increase of 7% in the first half, “group revenues for the second half were 4% lower than the prior year” and “EBITDA for the year will be at the low end of the £82-£87m range”.

This is somewhat disappointing since that range was given less than two months ago. The company states “we continue to make good progress in the implementation of our growth strategy in all key areas” and the announcement concludes that the board “continues to believe that the group enjoys excellent long-term prospects to deliver profitable growth, strong cash generation and attractive shareholder returns as one of the UK's best-known brands, a major British manufacturer and the country's leading retailer of living room furniture”.

Sounds good, but the facts are also that “the UK furniture market is currently very challenging with the outlook still uncertain” and thus “revenue growth is likely to be harder to achieve in the short term than in the recent past”.

I previously concluded that the headwinds together with a net debt-featuring balance sheet saw me cautious – and the company has since been “pleased to announce” a £25 million agreement to acquire specialist sofa retailer Sofology. It argues this “is expected to create near-term scope for material value creation” and notes a lower cost refinancing of borrowings, but I largely retain the prior concerns and currently continue to avoid.


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