General Election uncertainty hits DFS
The Doncaster-based firm believes the effects are market-wide, in line with industry indicators, and are linked to customer uncertainty regarding the General Election and the uncertain macroeconomic environment.
The economy has been thrown into doubt following the shock outcome of last week's election which resulted in a hung parliament. In times of doubt, consumers tend to put on hold the purchase of big ticket items such as a new three piece sofa.
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Hide AdSince the Government's decision to trigger Article 50 three months ago, there are signs that the economy is stalling with inflation outpacing wage growth and consumers feeling the pinch from higher food prices caused by the collapse in sterling since the EU referendum last year.
DFS said it now expects full year earnings to fall below market expectations. Its new prediction for annual earnings is between £82m and £87m.
The group said that the upholstery market sees short-term demand fluctuations from time-to-time, but there is an overall historical trend of long-term growth.
In a trading update the firm said: "Notwithstanding this, we have maintained our investment in the business and we are confident that we will outperform the market over the longer term, driven by our scale, business model and proven growth levers.
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Hide Ad"We believe our expectations for the next financial year are realistic based on consumer confidence remaining broadly in line with current levels, given its consequent impact on upholstery demand.
"We expect continued strong cash generation that has allowed the recent announcement of a £20m special dividend in addition to our ordinary dividend."
DFS said it would give a further trading update on August 10, following the completion of the group’s financial year.
In March DFS announced record half year results and said it would reward shareholders with its first special dividend.
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Hide AdThe firm said it was negotiating with suppliers to mitigate the fall in the pound since Brexit, but warned that the UK could see a slowdown in 2017 following the triggering of Article 50.
At the time DFS CEO Ian Filby said: “Consumer confidence to date has held up well, but we recognise that furniture retailing in the UK faces an increased risk of a market slowdown in 2017 because of the uncertain political and economic outlook.
“Economists are saying the market will be flat this year. I don’t see any signs at the moment of anything like the credit crunch. If you go back to 2008, DFS was massively successful because we are so flexible.
“We have so much product made here in the UK, it gives us a real advantage.”
The group said that its bigger size gives it significant advantages over rivals.