Interactive Investor

DFS upholsters profits by £100 million with Covid-inspired sales boom

25th August 2020 15:33

Graeme Evans from interactive investor

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Sofa, DIY and tile retailers prosper as consumers shun holidays to renovate their homes.

Consumers with money in the bank due to holidays being cancelled have helped sofa firm DFS Furniture (LSE:DFS) report a bigger-than-expected rebound in post-lockdown sales.

Analysts said revenues for the 2021 financial year to next June look to be £100 million ahead of where they had expected after DFS reported robust trading online and in showrooms.

The group, which trades as DFS, Dwell, Sofa Workshop and Sofology, believes consumers have been spending more on their homes relative to other sectors after being released from the nationwide lockdown.

Despite this strong start to the new financial year, with order intake growth equivalent to £70 million of revenues in the last six weeks, DFS said it still remains cautious.

It warned some consumers may be bringing forward spending decisions in a way that could impact trading later on, adding there was significant uncertainty about the outlook for consumer confidence and the potential impact of Brexit.

DFS shares still rose 13% to 169.8p, which is below where they were at the end of June and a long way off the 289p at the start of this year. Analysts at Peel Hunt, however, today raised their price target from 225p to 300p and described the retailer as market leader in a structurally booming market.

They said:

“Customers are turning up in good numbers, not to browse, faff or procrastinate but to buy, and they're not being shy with average order value either.”

Peel Hunt upgraded its underlying earnings forecast by 56% for the 2021 financial year, with the resulting boost to cash generation also helping DFS to de-leverage at a faster pace.

Analysts at Jefferies lifted their price target from 210p to 225p and said there was clear potential as DFS harnesses its market-leading position against struggling competitors. However, it added there was no reason to think the “supernormal” trading trends of recent weeks will continue beyond the current financial year.

Today's update highlights that some retail sectors are performing robustly despite the huge uncertainty caused by the Covid-19 pandemic. With holidays being refunded and many people still reluctant to eat out, a number of home improvement firms have benefited.

Topps Tiles (LSE:TPT) said this month that like-for-like retail revenues grew 15.5% in the six weeks to August 8, meaning it expects to report a modest profit for the year to next month.

B&Q and Screwfix owner Kingfisher (LSE:KGF) has also seen a DIY spending boom during and after the lockdown, with weekly like-for-like sales in the UK and Ireland up by as much as 19.6% in the first part of July. Its shares are currently trading at a two-year high.

Shore Capital said today:

“It would be a mistake to us to suggest that all categories and segments are experiencing a tough time at present. Non-discretionary, for example the grocers, are experiencing strong trading, as are the domestic motor dealers.”

Last week, Vertu Motors (LSE:VTU) reported that orders for the crucial September registration plate month were 20% ahead of last year, with like-for-like volumes in used cars up 13.7% in July.

Demand for domestic appliances has also been strong after online player AO World said revenues in the UK for the four months to the end of July had jumped 58.9% to £401.3 million.

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