DFS has announced its preliminary results for the 53 weeks ended 30th June 2024, in which it reports that successful gross margin and operating cost improvements partially mitigated "exceptionally low" market demand, and that it is well placed to capitalise on the anticipated demand recovery, given its strong market leadership position.
Revenue was down -9.3% YoY due to lower order intake (-1.8% YoY), delivered sales in the comparative period benefitting from the unwinding of an elevated opening order bank, Red Sea shipping delays deferring Q4 sales recognition to future periods, and higher Bank of England rates increasing the cost of providing interest-free credit.
DFS saw continued gross margin rate progression and operating efficiency cost savings partially offset the impact of the weaker market demand, leading to a reported loss before tax of £1.7m.
No final dividend has been proposed – DFS says an interim dividend covers the lower-than-anticipated full-year profit, based on its dividend cover policy.
In other results, DFS achieved record high post purchase and post delivery net promoter scores, and consolidated its clear market leadership position (up +4% on 2020), supported by the broadening of the brand's appeal to a wider potential customer base, and evolving Sofology's proposition through H2, driving a return to order intake growth in Q4.
It also says it made good progress improving the efficiency of its operations, resulting in cost savings that partially mitigated record low market volumes – DFS achieved £27.5m in cost efficiencies in the current year through reducing its operating cost base and lowering the cost of goods, leaving it on track to deliver at least £50m of targeted annualised savings by FY26.
Looking ahead, FY25 trading to date is in line with the retailer's expectations, with order intake in YoY growth over the first 12 weeks.
DFS expects a gradual market recovery over the course of the year, and for the group to grow profits in line with market consensus, supported by recent housing market recovery and real household disposable income growth. DFS' board remains confident in delivering its £1.4b revenue and 8% PBT medium-term targets as the market recovers.
Tim Stacey, group CEO, says: "I want to sincerely thank all our colleagues for their enthusiasm and continued commitment to delivering a great service to our customers in what has been a very challenging period for the group given the market conditions.
"Despite the challenges that the business has seen, we are optimistic for the future and see signs that market growth could soon return. We expect recent improvements in housing transaction data and strengthening consumer balance sheets to lead to increased upholstery market demand across the FY25 financial year. In addition, thanks to the success we have had growing our gross margin and improving our operational efficiency, we expect to deliver profits in line with market consensus, weighted to the second half.
"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. Despite the challenges we have faced, we remain confident that the business is well positioned to capitalise on market recovery. Given our strong market leadership position, the operational leverage in the business, our well-invested asset base and negative working capital cycle, we expect to deliver strong returns for our shareholders."
Commenting on the results, Julie Palmer, partner at Begbies Traynor, adds: “DFS' results are evidence of a company that has suffered through an exceptionally tough year, with gross sales and revenue taking a hit after the retailer experienced the lowest demand on record, supply chain disruption in the Red Sea and persistent economic headwinds.
“Despite these obstacles, DFS was able to partially mitigate the downturn through gross margin improvements and operating cost efficiencies, demonstrating the retailer’s capacity for resilience and adaptability.
“While consumer confidence remains shaky, there is also cautious optimism that demand will recover, bolstered by recent housing market improvements and growth in real household disposable income. When that happens, DFS looks to be well-placed to capitalise on the recovery as big-ticket sales come back into vogue.
“Following a series of profit warnings prior to these results, investors will be looking for any signs of a reversal in fortunes, especially given the company's strategic cost savings and operational enhancements. A clear focus on delivering profits in line with market consensus and a confident outlook for the upholstery market's recovery will be crucial if DFS is to navigate these ongoing challenges and leverage its market-leading position to deliver growth once again.”
