‘Are the lights turning back on in the home and furniture market?’

Many retailers of discretionary goods have had a hard time as the cost of living crisis hit consumers’ purchasing power.

Even as inflation eased, a feeling of gloom and uncertainty persisted after last year’s general election, the shock of the Budget and the downbeat mood music that seems to be on relentless replay by the government.

In such conditions, are there signs about when the lights might come back on for retailers in big-ticket and home categories?

This week there was an optimistic note – albeit, that had to be preceded by the now obligatory word ‘cautiously’ – from market-leading DFS.

The retailer expects a substantial increase in first-half profitability, orders are up and the winter sale – the equivalent of Christmas for home and furniture retailers – has got off to a decent start. DFS also held to existing full-year profit expectations.

After that good news came some big buts. Profit will probably be weighted to the half-year just ended, as demand is hit by jitters over the country’s economic outlook following the infamous Budget. Gains made as a result of disruption among competitors will likely “partially reverse” and, like other retailers across the industry, costs such as national insurance contributions will jump.

But in the medium and longer term the sector should bounce back

That circumspect reading of prospects echoed the view of homewares giant Dunelm, which also updated this week. Although sales rose, it flagged similar concerns about prospects as it reported it will “still” meet earnings expectations.

When DFS reported full-year results last autumn, chief executive Tim Stacey said “it is clear that the upholstery market has a long road to recovery given the 20% decline on pre-pandemic levels that we have seen”.

But in the medium and longer term the sector should bounce back. While both DFS and Dunelm’s shares were down this week, the former has progressed well on a 12-month basis – a sign perhaps of improved confidence in the market.

DFS has adopted a raft of self-help measures, maintaining strategic focus, controlling operational costs and generating efficiencies. Such factors will continue to mark out the winners in furniture and retail more widely amid harsh conditions.

Another sign that the home market is by no means a basket case is that Primark has just revealed it plans to open its first standalone home store, which will make its debut in Belfast in March.

Even though DFS wasn’t getting overheated about the outlook, its market is not in deep freeze

The store reflects the growth of the home category at Primark, and promises “interior enthusiasts endless choice and quality at affordable prices, blending style, comfort, and value.”

If Primark believes now is the time to push further into the home market, and admittedly at the moment it’s just a single dedicated store, then you can take that as a sign of long-term confidence and opportunity.

Even though DFS wasn’t getting overheated about the outlook, its market is not in deep freeze

Peel Hunt described the first half as “highly positive” and saw “upside risk”. The broker said: “We view this update as excellent, but believe management’s caution is sensible given potential consumer retrenchment. Optimism about the future is warranted, in our view.”

The lights have been dim in home lately, but they’re gradually being turned back on.