Safestyle suffers as consumers put purchases on hold

Safestyle said it has continued to grow market share

In July, the Bradford-based firm warned that uncertain market conditions and weaker consumer confidence meant that annual profits would be lower than previously expected.

On Friday it said that trading over the past two months has deteriorated further and order intake has "declined beyond the board's expectations".

In a trading update the group said: "The board believes this is due to an accelerating weakness in the market resulting from increasing consumer caution, as evidenced by the latest FENSA statistics, which show that the overall market has deteriorated further, with installations down by 18 per cent in June and July compared to 2016."

Despite this, Safestyle said it has continued to grow market share and remains well positioned in the event of a market recovery.

However, given the marked change in market conditions, it now expects full year revenues to be flat year on year. At the same time, its efforts to drive order intake are incurring additional costs, which has hit margins and will lead to a "material" impact on full year profits.

The group said it remains cash generative, with a significant cash balance and a robust balance sheet and it will announce further details when it reports interim results on September 21.

Safestyle's shares closed down 29.9 per cent, a fall of 70.5p to 165p.

Analyst Matthew McEachran at N+1 Singer said: "Safestyle has released an unscheduled update indicating market conditions have sharply deteriorated. FENSA indicates installations down 18 per cent.

"While Safestyle continues to take share, margin has been significantly impacted. We forecast 320bps deterioration in the second half versus prior assumptions.

"This and lower sales means pre-tax profit has been downgraded 17.5 per cent this year and 18.6 per cent next year. Net cash forecasts are reduced by a similar amount but are sufficient to hold the dividend at last year’s level. With a new target price of 180p (versus 225p) we reiterate our 'sell' recommendation."

Analysts at Liberum said in a note: "Safestyle has today warned that its order intake deteriorated in July and August, with management citing a fall in the overall market as consumers become more cautious.

"Slower lead generation has pushed up the cost of leads and gross margin will also be hit by a rise in the take-up of promotional finance."

Liberum has cut its share price target by 25 per cent to 215p, but said the shares could overshoot this given the surprise of the statement.

"In support of the shares, we note the high dividend yield (around 5 per cent) and cash on the balance sheet (7 per cent of market capitalisation)," they said.

"Management still has many levers to generate out-performance and we see cost reduction driving profit progress in 2018."

Safestyle is the latest Yorkshire firm to warn on profits following worries about the UK economy.

Last month, sofa chain DFS Furniture blamed the uncertain economic environment, the unexpected General Election and warm weather for a 4 per cent fall in second half sales.

The Doncaster-based group confirmed that profits will take a hit following weaker trading at its stores.

The retailer reported "significant" declines in store footfall and customer orders between April and June.

In a stock market update, the retailer said: "The second half has been weaker than we expected owing to significant declines in store footfall and customer orders across April, May and June.

"We believe this to be an industry-wide issue, resulting from the uncertain economic environment and unexpected General Election, exacerbated by warm weather in May and June."

The economy has been thrown into doubt following the shock outcome of the General 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 or double glazing.

DFS described the UK furniture market as "very challenging" with an uncertain outlook.

It said it will seek out efficiency savings as revenue growth becomes harder to achieve in the short term.