This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2017/jun/15/dfs-profits-uk-spending-squeeze-election-brexit-uk-consumers

The article has changed 10 times. There is an RSS feed of changes available.

Version 1 Version 2
DFS warns over profits amid election and Brexit uncertainty DFS warns over profits amid election and Brexit uncertainty
(about 3 hours later)
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. A shock profit warning from sofa chain DFS has sent shockwaves through the high street today as concerns grow that Britons’ spending power is being squeezed by higher living costs.
Its profit warning sent shares in the furniture retailer down as much as 22% in early trading. DFS chief executive Ian Filby blamed a sharp fall in orders for new sofas in recent weeks on the upheaval created by the general election as well as the general air of uncertainty hanging over the economy. This backdrop deterred consumers from committing to “big ticket” discretionary purchases with the retailer experiencing a huge slump in the number of shoppers visiting its stores.
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. “The trading environment has recently weakened beyond our expectation, with significant declines in store footfall leading to a material reduction in customer orders,” said Filby.
Official data published this week showed British workers’ earnings after inflation shrinking at the fastest pace since 2014. Filby’s gloomy commentary on consumer spending affected investor confidence in the outlook for the retail sector with the share prices of major chains including Next, Marks & Spencer and Debenhams as well as electricals specialists Dixons Carphone and AO World all hit. Homewares specialist Dunelm, which like DFS trades from “out-of-town” superstores on retail parks, was also marked down. 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. DFS said it now expected to make profits of of £82m to £87m for its year to the end of July. Analysts were previously forecasting £96.1m up from £94.2m in 2015-16. The profit warning wiped more than £100m off DFS’s market value with its shares down more than 20% to 198p at lunchtime.
“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 profit alert came as official data showed a worse-than-expected 1.2% decline in retail sales volumes in May, as rising prices depressed annual consumer spending growth to levels last seen in 2013. In keeping with DFS’s experience furniture sellers were among the worst hit as consumers diverted their spending to food and other essentials. Last month flooring specialist Topps Tiles warned its annual profits would come in towards the bottom of City expectations after suffering a slowdown in sales this year.
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. Majestic Wine boss Rowan Gormley said the retailer was “preparing for the worst” with the pace of UK sales growth expected to drop to less than 5% in the year. “UK retail is likely to be in for a rough ride, with downward pressure on demand, due to falling household incomes and upward pressure on prices,” he said.
DFS said it has maintained its investment in the business and was confident of outperforming the market over the longer term. Majestic, which also owns the Naked Wines website, said group sales rose 11.4% to £461m in the year to 3 April but it slid £1.5m into the red partly as a result of costs related to the acquisition of Naked and more investment in stores and staff. The thirst for its wines in the UK had not been affected so far, Gormley said but added that shoppers were switching to wines from eastern Europe, South Africa and England as they sought to offset a 6% year-on-year price rise in wines.
“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. “We believe the rest of 2017 will be quite tough for the UK retail sector,” said Nicla Di Palma, analyst at Brewin Dolphin. “Consumers’ disposable incomes are declining as wage growth is not keeping pace with inflation, and the price of both food as well as non-food items is bound to increase due to sterling depreciation. This will lead to a subdued outlook for retailers, as the UK consumer will be reluctant to spend on discretionary purchases.”
“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.