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The DFS Furniture share price hits five-year highs! This is what I’m doing now

Image: DFS: Fair use

Investor demand for UK shares remains pretty flat during Thursday business. Though the DFS Furniture Group (LSE: DFS) share price is having no problems making progress during today’s session.

Market interest in the retailer has rocketed after it released a pre-close update for its financial year. At 317p per share, the DFS Furniture share price hit its most expensive since spring 2016 early on Thursday. It was recently trading 11% higher on the day at 302.5p.

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DFS’s share price rises as demand booms

In an encouraging update for the year to June 2021, DFS Furniture said that orders have soared in recent weeks. So far in the final quarter order intake is up 92.1% year-on-year, a surge that reflects “customers waiting for showrooms to reopen post-lockdown and increased consumer spending on home categories.”

During the second half, total orders were up 14%, while market share gains remained at around 2%. And it saw online sales rocketing 222.5% in the third quarter, a period when almost all of the company’s stores were shuttered due to Covid-19.

Forecasts upgraded

Trading has been so strong, in fact, that DFS has upgraded its full-year profit forecasts, despite ongoing Covid-19 pressures and supply chain issues.

The retailer now reckons it will generate underlying profits of at least £105m for financial 2021. This is better than the £101.7m DFS had forecast back in December. The company had swung to a loss of £56.8m in the last fiscal year.

Furthermore, DFS has predicted underlying profits of between £66m and £96m in financial 2022, ahead of market consensus. It said that the recent upsurge in orders will be recognised in the upcoming year.

Finally, DFS has elected to reinstate dividends thanks to its strong cash generation and sunny outlook. It plans to pay a 7.5p per share final dividend for the outgoing financial year.

This is what I’m doing now

Looking ahead, chief executive Tim Stacey said that “we will continue to invest in key strategic initiatives such as our digital channels, our showrooms and our Sofa Delivery Company final mile logistics capability.” He also pledged further investment in UK manufacturing and capacity as well as expansion into other homeware categories.

As a UK share investor, I’m impressed by DFS’s ability to keep growing profits despite current difficulties. It is testament to the company’s strong multi-channel presence and its market-leading proposition. But the company isn’t out of the woods yet, as supply problems in the form of raw materials and container shortages, allied with a fresh spike in Covid-19 cases, could well derail its recovery.

Today the DFS share price commands a forward price to earnings (or P/E) ratio of around 15 times. It’s not cheap enough to tempt me in and so I’m happy to sit on the sidelines for the moment.

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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.

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