DFS and Wickes profits are wiped out by moderating consumer demand

Retailers Wickes and DFS both saw their profits take a hit after inflationary pressures caused a slowdown in the home improvement market.

Both companies again posted modest revenue growth in their latest trading updates against strong comparisons from the previous year, with Wickes achieving record revenue of £822.3m.

However, worsening cost inflation and supply chain disruptions have impacted their revenues even as they seek to pass on rising costs to consumers.

Profits at furniture seller DFS more than halved from £88.7m to £31.4m for the year to June 26, while they fell 21% to £26.9m at DIY company Wickes in the six months to July 2.

DFS earnings were also impacted by the end of business rate relief, increased shipping and transportation costs, and the strengthening of call center and home service teams to meet backlog. larger orders.

The Derbyshire-based group described the most recent 12-month reporting period as “the most operationally challenging year we can remember”, defined by four quarters with varying levels of demand.

He said the fiscal year started with a large order book before trading weakened in the next quarter, which he said could be due to longer lead times.

Volume growth rebounded to double-digit percentage growth in the third quarter, but has slowed in the past three months as the cost-of-living crisis caused consumers to tighten their belts.

Wickes also reported in July that the trade had weakened in the weeks following the Platinum Jubilee celebrations, although it continued to outperform the broader market.

Confidence: Wickes believes that the fundamentals of the DIY market are solid, given the low unemployment rate, the buoyant real estate market and the need to make homes more energy efficient

This waning momentum represents a dramatic departure for every business from the first half of the pandemic era, when the work-from-home trend left Britons locked in with extra savings seeking to spruce up their properties.

Further increases came from a temporary stamp duty holiday introduced by the UK government in mid-2020 and a growing desire among buyers to live in more spacious locations.

They now face a much tougher economic environment, with UK inflation hovering in the mid-single digits and energy prices soaring over the past 12 months.

Lara Martinez, an analyst at global research firm Third Bridge, said: “The most pressing task for Wickes is trying to protect their margins.” Supply chain disruptions may have eased, but raw material costs remain high.

Still, Wickes thinks the underlying market fundamentals are strong, given low unemployment, a buoyant real estate market and growing interest in improving the energy efficiency of homes.

It still expects to post adjusted pre-tax profits of £72-82million this year. Investors reacted positively to the company’s outlook, sending Wickes Group Shares up 9.5% to 126.6p on Thursday.

By comparing, DFS Furniture Shares fell 0.6% to £1.35 as it warned profits could fall to £20m, even though the company expects revenue to remain above pre-pandemic levels.

“Gone are the days of consumers hoarding cash during the pandemic, to splurge on living room upgrades to add comfort to lockdowns,” said Susannah Streeter, principal investment and market analyst at Hargreaves Lansdown. .

She added: ‘DFS not only has to deal with a downturn due to the purchases that have been brought forward during the pandemic, but now that household bills are rising for essentials like food and heating, a new soft sofa is a luxuries that many consumers are happy to do without.’