Signs of continued strain on British shoppers’ spending power would encourage me to switch out of sofa specialist DFS Furniture (LSE: DFS) before the latest financials this week (an interim release is slated for Thursday, 30 March).
So far, DFS has proved resilient since last June’s Brexit vote. The furnishings play announced in February that sales during the six months to January grew at a solid 7%, prompting it to keep its guidance for the full year unchanged.
But retail indicators have become more worrying recently, as Britons buckle down against a backcloth of rising inflation and expectations of toughening economic conditions as we move through 2017.
Sitting uncomfortably
Latest Office of National Statistics numbers, for instance, showed total retail revenues fall 1.4% during the quarter to February, the largest three-month drop since 2010.
And patchy updates from DFS’s competitors in recent months, warning of slowing sales and the likelihood of tough trading conditions persisting, should come as concern to share pickers.
SCS Group advised last week that “trading in February was challenging, largely driven by reduced footfall,” although it added that “we have seen an improvement since the start of March.” And Dunelm Mill warned last month that “market conditions remain challenging” as it also advised of a 1.6% fall in like-for-like sales during July-December.
DFS itself cautioned last month that “in 2017 the retailing of furniture in the UK faces an increased risk of a market slowdown given the uncertain outlook for consumer confidence.” And I believe a similarly cautious statement this week could send investors heading for the hills.
The City expects DFS to suffer a 53% earnings fall in the year to July 2017. And while the number crunchers expect the business to keep the divided locked at 11p per share this year — a figure that yields 4.5% — I believe the dangers associated with the sofa giant far outweigh the potential of such a lucrative reward, and reckon these forecasts could be subject to downgrades as the year progresses.
Commodities cloud
A troubling outlook for commodity prices would also encourage me to cash-in on Rio Tinto (LSE: RIO).
The mining colossus has seen its share price slip to ten-week lows in Monday trading, as President Trump’s failure to get his Obamacare-replacement written into law has cast doubts over the reality of his other proposed policies, and especially the promise of huge infrastructure spending.
However, political developments across The Pond are not the only reason for concern — demand indicators from commodities collector China also remains less than reassuring. Indeed, iron ore prices are currently in free fall, as signs of massive material oversupply in the Asian powerhouse’s ports grow.
These poor fundamentals cast a cloud over City predictions that Rio Tinto will enjoy a 66% earnings uplift in 2017, and thus raise the dividend per share from 170 US cents to 268.5 US cents. I reckon cautious share selectors should give the digger short shrift.