The furniture retailer DFS has issued its second profit warning of the year, blaming much of the drop on delays to deliveries and higher shipping costs caused by the Red Sea crisis.
The retailer, which owns 118 shops across the UK, said it expected pre-tax profits of £10m-£12m for the year ending 30 June 2024, well down on the £20m-£25m predicted in March, amid supply chain disruption and weaker consumer demand.
This comes just months after the company revised down its initial profit forecast of £30m-£35m for the year.
The company said in an update on Tuesday that the fall in profits was driven in part by Red Sea routing problems caused by the attacks by Houthi militants in Yemen on commercial shipping vessels travelling through the stretch of water.
It added that this was leading to higher than expected freight rates for deliveries of goods, which had also affected profits.
The attacks, which began in November, have made many of the world’s biggest shipping firms stop taking ships through the Red Sea, instead redirecting them around the tip of South Africa, passing the Cape of Good Hope. This diversion can add 10 days to a journey and increase fuel costs by 40%.
The disruption has also sent freight rates rocketing, with the British Chamber of Commerce reporting earlier this year that some of its members had experienced a 300% increase in container hire since the attacks began.
DFS said this had resulted in a lower level of customer orders arriving on time, with about £12m-£14m of deliveries being delayed because of the Red Sea disruption. These will now be moved into next year’s results.
The company also pointed to slowing consumer demand, as sales in the upholstery sector had dropped by 10% annually, adding that trade began the year at a weak level.
DFS said it had been encouraged by an upturn in its fourth quarter, with orders up by 9% compared with the previous year. This was partly driven by successful initiatives such as strengthening the ranging and pricing of its Sofology range and reintroducing a four-year interest-free credit option for buyers.
It said: “While 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.”
DFS shares fell 10% in early trading on Wednesday after the announcement.
