Upholstered furniture retailer DFS has reported lower expectations in profit due to the Red Sea disruption and challenging consumer demand.

According to its latest trading update through to 11 June 2024 of the 53 week period to 30 June 2024, DFS expects pre-tax profit to be within the range of £10-12m, down from its previous guidance of £20-25m. FY24 revenues are now expected to be in a range of £995m-£1,000m.

DFS said the reduction in profit is driven by: “A lower level of delivered customer orders, with £12-14m of delayed deliveries from the Red Sea disruption. Those deliveries are expected to move into FY25.

“Higher shipping costs as a result of freight rates increasing above previous expectations in our fourth quarter.

“A weak upholstery market partially mitigated by selective investments to stimulate required order volume levels in Quarter 4.”

The retailer added that progress on its focus areas has helped to “partly mitigate” the profit impact of a “very weak” upholstery market.

“Consumer demand in the upholstery sector has declined c-10% in volume terms year on year from a weak starting point bringing overall market demand levels to record lows. The Group has continued to operate through the period with record value market share of over 38.5%.

“Despite higher shipping costs and investments to drive required order intake volumes in Q4, we have continued to grow our full year gross margin rate, which is expected to be up +140bps year on year. In addition, we have reduced our operating costs which are expected to be down approximately £25m year on year. Together these have limited the lower sales impact on our profitability.”

As for recent trading and outlook into FY25, DFS said it has been “encouraged” by an improving trend in Group order intake, which is up 9% in the fourth quarter to date.

“The recent improvement comes as we annualise weaker prior year comparatives and also following successful initiatives to strengthen the product ranging and pricing in Sofology and reintroducing 4 year interest free credit at select times to maximise revenue and profit in this difficult trading environment. 

“Whilst the economic outlook remains hard to predict we expect the widely predicted lower inflation and interest rate environment to have a positive impact on upholstery market demand levels with the declines experienced across the last three years starting to reverse and the market slowly recovering in our FY25 period.

“We are well placed to capitalise on any market recovery given our market leadership position, the operational leverage in the business and the progress we are making on our cost base.”