DFS sounds profit alarm

FURNITURE group DFS today warned that its full-year profits will fall short of most forecasts after a disappointing winter sale. There was further disappointment in the City as the group said it has failed to agree bid terms with founder and chairman Lord Kirkham, who wants to take the business private.

Sales for the six months to end-January rose by just over 3% to £249.4m but the underlying figure was down by 2.9%. The fall is even greater - at 4.8% - when the 'cannibalisation' effect of new stores on existing outlets is taken into account.

DFS has pursued an aggressive opening programme in recent years but Kirkham said new stores have been taking far more business from existing outlets than had been expected.

This means the group will limit its expansion plans and is being forced to 'reassess the potential for continued expansion of the DFS format'.

The group has been hit by growing competition in the market, with the entry of new players such as Argos, Next and Marks & Spencer. There was a poor response to its winter sale, with negative like-for-like orders seen for the first time since the group floated in the early 1990s.

Price-cutting gave a boost to sales over Easter, but at the expense of margins. Profits for the full year will now be at the bottom end of City expectations, at about £51m, against £56.4m the previous year.

Kirkham made an indicative offer of 415p a share for the company last month but the £445m bid has been rejected by the independent directors. Talks are continuing, they said, although today's profits warning casts doubt on market speculation that Kirkham may be prepared to raise his offer to 430p a share, which would value the business at £462m.

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