Share markets were still sharply selling off in Friday business. The FTSE 100 was down another 200 points from the prior close and it’s now at it cheapest since summer 2016. And more falls obviously can’t be ruled out as coronavirus-related news flow gets worse.
DFS Furniture (LSE: DFS) is a UK share that’s in particular danger of sinking in the week ahead. It’s not just the broader decline in market sentiment that could drag it lower. I’d caution that the release of interim results on Tuesday (March 10) could send investors dashing for the exit.
Retail conditions remain weak
The furniture retailer didn’t fill me with confidence last time out in January. Back then it said that gross sales were down 6% on an annual basis during the six months to December. DFS said that “the challenging market environment impacting footfall and the performance in the strong prior year period” caused the meaty top-line reversal.
On the plus side, the retailer added that order intake had strengthened more recently. It said that its critical Winter Sale period had got off to a “satisfactory” start too. But recent industry data suggests that the business might have struggled to keep this recent momentum going.
The British Retail Consortium (BRC) and KPMG’s latest retail report underlined the sector’s ongoing difficulties. It said that British like-for-like retail sales were flat between December 29 and February 1, that key winter selling season for DFS. This compares with the 1.8% rise punched in the corresponding period a year earlier.
Commenting on the results, Helen Dickinson, chief executive of the BRC commented that “across the UK, retailers are facing tighter margins as a result of weak consumer demand and increasing costs, including sky-high business rates.”
She added that “recent political uncertainty and a decade of austerity appear to have ingrained a more thrifty approach to shopping among consumers.” That’s bad news for furniture sellers like DFS. But it’s not just continued Brexit concerns that threaten to keep confidence at rock bottom and shoppers out of furniture stores. The recent coronavirus breakout is also likely to have taken a bite out of sales of non-discretionary items of late, and particularly demand for more expensive goods like furniture.
Profit projections about to fall?
In that January trading statement, DFS maintained its expectations for the full financial year (to June 2020). But this was based on the assumption of “low-single-digit revenue growth” in the second half.
I reckon the retailer may be about to scale back its predictions. In fact, I fear that a downgrade to its pre-tax profit forecasts could be announced very soon, the coronavirus outbreak worsening already-weak consumer sentiment.
So forget about DFS’s cheap forward P/E ratio of 12.8 times and bulging 5% dividend yield. This a share to be avoided at all costs given the high chances of more sharp share price falls, I think.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.