28 May 2024, 11:51
By Furniture News Sept 15, 2022

DFS grows profits in "most operationally challenging year" yet

DFS says it overcame significant challenges to achieve revenues of £1149.8m (down from £1060.2m in FY21) in the 52 weeks ended 26th June 2022.

Revenue from continuing operations (now excluding Sofa Workshop) grew by £192.4m, "underpinned by a strong order bank entering the year, as well as double-digit order intake growth across both brands, driven by market share gain in DFS and new showroom openings in Sofology", according to the retailer's preliminary results.

The proportion of online sales (c.22%) made remained significantly ahead of the comparative FY19 period, but has now normalised against the higher levels of FY21, which was impacted by Covid-related government lockdowns.

DFS reported a profit before tax (PBT) of £58.5 (down from £102.6m in FY21).

Group CEO Tim Stacey says: "This has been the most operationally challenging year that we can remember with industry-wide Covid-related supply chain issues, double-digit cost inflation on raw materials and ongoing colleague absence and skill shortages. None of this is new news now, and we are not alone in having to navigate these issues. In the end what matters is the strength of our business that allowed us to respond to events and to that end I am so proud and grateful to every single one of our colleagues who have shown such resilience, resourcefulness and commitment throughout the year. Thank you.

"Looking forward, the UK furniture market continues to be challenging and the outlook for the sector remains uncertain given the macroeconomic environment. From the fourth quarter of the year, we saw a reduction in the volume of orders, which we believe is consistent with the overall furniture retail market, although our elevated order bank will provide some resilience as we enter our 2023 financial year.

"In previous challenging environments DFS has performed resiliently and strengthened its market position, by leveraging its fundamental strengths in brand equity, manufacturer access, store sales densities, scale of operations and flexible cost base. In the face of the current slowdown in the market, I am confident that we will emerge stronger. 

"We will continue to pursue our strategy outlined in our Capital Markets day on 15th March, and stand behind our ambition to grow turnover to £1.4b and increase our PBT(A) profit margin to over +8%."

The period saw the closure of DFS' Netherlands and Spain businesses, creating a £12.8m loss this year. Net bank debt increased to £90m (from £19m).

DFS achieved further market share gains, and opened seven new Sofology showrooms, with two further openings planned in FY23. Its DFS store transformation programme has been rolled out across 47 stores, with the refitted stores showing enhanced sales growth and an average payback period of under 24 months.

Despite creating a degree of customer dissatisfaction, the retailer says it overcame significant Covid-related supply chain challenges, and inflationary cost pressures which were absorbed into product prices.

In Q4 of DFS' FY22 and Q1 of FY23, order volumes softened markedly relative to pre-pandemic levels, and the macroeconomic environment remains challenging, "given the potential effects of the current high-inflationary environment on consumer behaviour", states the retailer.

Anticipated profits before tax and brand amortisation could be anywhere between £20m and £54m, with a moderate scenario envisaging £36m.

"We are targeting cost opportunities on property, supply chain and administrative activities, created by the scale benefits of ongoing DFS and Sofology brand alignments and volume growth relative to pre-pandemic levels," states DFS' outgoing chair, Ian Durant. "Furthermore, we have been reassured to date by consumers' relative tolerance of any necessary price increases to offset inflation and the revenue benefit of the sustained c.3% points of market share that we have captured since FY19. These factors, together with the over a £30m elevated order bank entering the financial year, will provide some insulation to our short-term profit expectations."

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