* Trading environment weakens beyond firm’s expectations
* Has seen “material reduction” in customer orders
* Sees customer uncertainty linked to election, macro situation
* Shares fall up to 25 pct (Adds detail, UK retail sales, analyst comment, updates shares)
By James Davey
LONDON, June 15 (Reuters) - British retailer DFS Furniture warned on Thursday that it would not meet profit expectations for the current year, blaming a dip in demand for sofas amid customer uncertainty about the economic and political outlook.
The profit warning knocked as much as a quarter off the value of the upholstered furniture retailer’s shares.
As sofas are seen as a discretionary “big ticket” item the profit alert adds to evidence that Britons are beginning to react to an increasingly tight squeeze on their spending power.
They have been hurt by a rise in inflation, caused in large part by the fall in the value of the pound since last year’s vote to leave the European Union, and by a slowdown in wages growth.
British retail sales fell more sharply than expected in May, official data showed on Thursday, while data earlier this week showed British workers’ earnings after inflation shrinking at the fastest pace since 2014.
DFS said its trading environment had weakened more than it had anticipated in the last three months, with significant declines in customer store visits leading to a “material reduction” in orders.
“We believe these demand effects are market-wide, in line with industry indicators, and are linked to customer uncertainty regarding the general election and the uncertain macroeconomic environment,” it said.
Last week’s election left Britain without a majority government and facing prolonged political uncertainty.
The descent into political crisis just days before Brexit talks begin has sapped confidence among business leaders and infuriated bosses who were already grappling with the fallout from the vote to leave the EU.
DFS said it now expected to make core earnings of 82 million-87 million pounds ($106 million-$111 million) for its year to end-July.
Analysts were previously forecasting 96.1 million pounds, according to Reuters data, up from the 94.2 million pounds made in 2015-16.
DFS said it has maintained its investment in the business and was confident of outperforming the market over the longer term.
“We believe our expectations for the next financial year (2017-18) are realistic based on consumer confidence remaining broadly in line with current levels, given its consequent impact on upholstery demand,” it said.
However, analysts at Jefferies, who cut their recommendation to “hold” from “buy”, said that by next year Britain’s Brexit negotiations with the EU could be weighing even more on consumer sentiment.
At 1017 GMT shares in DFS were down 53 pence at 199 pence, valuing the business at 421 million pounds. Prior to the update the shares had risen 15 percent in 2017. ($1 = 0.7849 pounds) (Editing by Paul Sandle and Susan Fenton)