Carpetright rolls out the revenues but DFS loses its sales cushion

DFS and Carpetright highlighted yesterday just how cut-throat competition in the home furnishings sector has become, casting fresh doubt on whether Marks & Spencer's big push into the saturated market later this month will revive the retailer's fortunes.

DFS, the country's biggest sofa seller, said "intense competition from both new entrants and established players" was to blame for a profit warning after it revealed like-for-like sales had fallen by 3.2 per cent over its peak Christmas and new year trading periods.

Although Carpetright, which sells more floor coverings than any other retailer, fared better, lifting underlying sales by 4.6 per cent in the 13 weeks to 31 January, its gross margin was flat, signalling that at least some of its sales growth was driven by discounting.

Jon Massey, DFS's chief operating officer, warned: "You can't have this weight of new players coming into the market without it having an impact. I wouldn't think this level of interest could be sustained without there being casualties."

Argos and Homebase, both owned by the retail conglomerate GUS, have stepped up their home furnishings offerings, while MFI has also launched a furniture line. M&S is due to open its first Lifestore, under the aegis of the former Selfridges' boss Vittorio Radice, in Newcastle upon Tyne later this month. A second stand-alone home furnishings store will follow in Kingston, London, in the summer.

Although most analysts were relieved that DFS had not suffered more, they cut their full-year, pre-tax profit forecasts for the company by up to 9 per cent. Its shares slipped 6p to 364p. Geoff Lowery, at Altium Capital, said: "There is every reason to remain cautious on the outlook. There has also been persistent evidence from across the industry of lower furniture demand, [which is] a function of pressure on household incomes from rising interest rates and taxation and the mixed outlook for the housing market."

Mr Massey said: "The new players are shaking things up and the weaker players, such as Homebase and Courts, are being very active in trying to combat that." Although the company issued a bleak assessment of prospects for consumer spending, Mr Massey modified this, adding: "We feel our relatively disappointing sales figures are being damaged more by competitors' actions than any slowdown in consumer demand."

DFS said its underlying order intake during its first half was 2.2 per cent lower, adding that its interim profit would also be lower than last year, despite deriving some sourcing gains from the weak US dollar.

Meanwhile, Darren Shapland, Carpetright's finance director, said the group had benefited from the cold snap, which boosted demand for warm carpets such as Berbers. He said lower-than-forecast margins would be offset by strong sales.