DFS cancels dividend after losses and rising debt

DFS Furniture has cut its dividend after the company made losses as a result of shipping disruptions in the Red Sea and “record low” demand, which hit the homewares company’s bottom line.

The group, which has had to issue two profit warnings this year, reported a pre-tax loss of £1.7 million for the year ended 30 June, compared with a profit of £29.7 million in the previous 12 months.

Bosses said the “disappointing” results were an “unavoidable result of market conditions” that had forced DFS to cut its dividend and dramatically increase its borrowing.

The company said consumer demand suffered “significantly” last year “due to the cost of living crisis.” It added that the decline “exceeded our initial expectations and overall demand reached a record low.”

CEO Tim Stacey reassured shareholders that “recent improvements in real estate transaction data and strengthening consumer balance sheets” would “lead to increased demand in the upholstery market” in the coming year.

Revenue from continuing operations fell by 9.3 percent to £987.1 million in the same period, due to lower orders and the impact of supply disruptions.

The group also said that the Bank of England’s interest rate hikes had caused the cost of interest-free loans to rise. DFS allows customers to spread the cost of new furniture in monthly instalments, with no set-up fee, deposit or interest.

Stacey said: “Given the 20 per cent decline from pre-pandemic levels we have seen, it is clear that the upholstered furniture market has a long road to recovery.”

“Despite the challenges we have faced, we remain confident that the company is well positioned to benefit from the market recovery.”

Net bank debt rose by 17.5 percent to just under £165 million over the course of the year, while the leverage ratio, as measured by the debt-to-earnings ratio, increased from 1.9 to 2.5.

As a result, the Group will not pay any dividend to its shareholders for the entire year.

DFS announced an interim dividend of 1.1 pence per share earlier this year, saying it was “in the long-term interests of the group”.

According to Shore Capital analyst Clive Black, the results would be “gloomy reading” for DFS investors, but reflect “the impact of a particularly weak UK non-consumables market in 2024.”

DFS shares fell almost 5 percent at the start of trading but recovered to trade 2.4 percent higher at 117.75 pence by mid-morning. Their value has fallen 1.6 percent since the start of the year, but has risen 4.2 percent over the past year.

Black said: “DFS has maintained its service levels … gained market share and is well positioned should market conditions improve, [but] Further cuts in key interest rates are probably necessary and there must be no budget that focuses entirely on the car crisis.

“With a decline of 5.5 percent [year-to-date]the market is signalling this through earnings, which we agree with. DFS should therefore be on any positive watch list.’

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