15th Mar 2022 14:01
(Alliance News) - DFS Furniture PLC still faces short-term challenges, but it is the sofa seller's brighter distant future that investors should focus on, analysts at broker Peel Hunt said on Tuesday.
DFS has a market leading position, Peel noted, and its prospects are promising, despite weaker interim earnings.
In the 26 weeks to December 26, DFS secured revenue of GBP561.1 million, down 2.0% from GBP572.6 million a year earlier.
The company's pretax profit slumped 70% to GBP21.6 million from GBP72.1 million. Selling and distribution costs came in 21% higher at GBP183.8 million. However, pretax profit was 36% higher than two years earlier, before the onset of the pandemic.
In the short-term, DFS faces challenges in logistics and its supply chain. It slightly trimmed annual guidance but said it has kicked off the second half strongly, however.
It expects annual pretax profit, also before amortisation, between GBP66 million and GBP85 million. The upper end of that range was previously GBP96 million.
Guidance was lowered due to logistics disruption.
Peel added: "Current trading is good and short term there is a supply chain-based rejig to profit forecasts, but the big picture is where investors should focus. The valuation is way too low."
Looking further out, the company eyes GBP1.4 billion in annual revenue by financial 2026. It will achieve this through its 'Pillars and Platforms' strategy', which will "lead furniture retailing in the digital age". Revenue in financial 2021 amounted to GBP1.07 billion.
Peel Hunt commented: "DFS' market leadership is valuable and its growth potential is material (new stores, LFL and moves into home categories). The interims (and upcoming Capital Markets Day) outline the route to GBP1.4 billion of sales and an 8% pretax profit margin by 2026, a target we see DFS achieving."
DFS declared a 3.7 pence dividend, having not made an interim payout a year earlier. It had recently resumed dividends with a 7.5p final payout. It will also pay a 10p special dividend.
In addition, it plans a GBP25 million share buyback to be executed over the next 12 months.
The trio of returns form the company's GBP80 million special capital return plan.
DFS shares were 0.7% lower at 196.20 pence each in London on Tuesday afternoon.
Investors are still concerned about the tough market conditions facing furniture retailers like DFS, an analyst at research house Edison Group said.
"There is still concern across the industry that the persistent logistical and supply chain challenges which have emerged in the last year will continue to put pressure on the company's operating costs. Already DFS is narrowing its scenario range with disruptions in both logistics and manufacturing predicted to affect second-half throughput," Edison Group analyst Neil Shah commented.
"Management noted that trading across H2 to date had started strongly again, with inflationary pressures on profit expectations being minimized by the success of their approach. In the face of macroeconomic uncertainties - including inflation and living costs – the group remained confident that it will continue to drive market share gains ahead of its competitors, and its expectations for total FY22 and FY23 profits remain unchanged. However, these results show that there is work is to be done to help build back momentum."
By Eric Cunha; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.
Related Shares:
Dfs Furn