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| DFS warns over profits in latest sign of UK spending squeeze | |
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| A surprise profit warning from sofa chain DFS has sent shockwaves through the high street, as concerns grow that Britons’ spending power is being squeezed by higher living costs. | A surprise profit warning from sofa chain DFS has sent shockwaves through the high street, as concerns grow that Britons’ spending power is being squeezed by higher living costs. |
| The chief executive of DFS, Ian Filby, blamed a sharp fall in orders 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 had deterred consumers from committing to “big ticket” discretionary purchases with the retailer experiencing a huge slump in the number of shoppers visiting its stores, he said. | The chief executive of DFS, Ian Filby, blamed a sharp fall in orders 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 had deterred consumers from committing to “big ticket” discretionary purchases with the retailer experiencing a huge slump in the number of shoppers visiting its stores, he said. |
| “The trading environment has recently weakened beyond our expectation, with significant declines in store footfall leading to a material reduction in customer orders,” he added. | “The trading environment has recently weakened beyond our expectation, with significant declines in store footfall leading to a material reduction in customer orders,” he added. |
| Filby’s gloomy commentary on consumer spending hit investor confidence about the outlook for the retail sector, with the share prices of major chains including Next, Marks & Spencer, Debenhams, 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 have been shrinking at their fastest pace since 2014. | Filby’s gloomy commentary on consumer spending hit investor confidence about the outlook for the retail sector, with the share prices of major chains including Next, Marks & Spencer, Debenhams, 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 have been shrinking at their fastest pace since 2014. |
| 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. Its shares were down more than 20% to 198p at lunchtime. | 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. Its shares were down more than 20% to 198p at lunchtime. |
| 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. Furniture sellers were among the worst hit as consumers diverted their spending to food and other essentials. Fooring specialist Topps Tiles warned last month that its annual profits would come in towards the bottom of City expectations after a slowdown in sales this year. | 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. Furniture sellers were among the worst hit as consumers diverted their spending to food and other essentials. Fooring specialist Topps Tiles warned last month that its annual profits would come in towards the bottom of City expectations after a slowdown in sales this year. |
| Majestic Wine’s chief executive, Rowan Gormley, said the retailer was “preparing for the worst”, with the pace of UK sales growth expected to shrink 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. | Majestic Wine’s chief executive, Rowan Gormley, said the retailer was “preparing for the worst”, with the pace of UK sales growth expected to shrink 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. |
| 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. | 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. |
| Gormley said the volume of sales in the UK had not been affected so far, but 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. | Gormley said the volume of sales in the UK had not been affected so far, but 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 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.” | “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.” |