DFS has announced its interim results for the 26-week period ended 25th December 2022.
Profit before tax, excluding brand amortisation, fell by £16.2m to £7.1m (1.3% of revenues), which DFS says is reflective of a weak market environment, particularly in Q1.
However, it says higher AOVs, driven by range innovation as well as some retail price increases to counter input inflation, more than offset the impact on revenues of a decline in market volumes compared to FY19 – revenue from continuing operations was £544.5m, down -2.2% YoY (but up +9.4% compared to the pre-pandemic FY19 period).
The retailer says it achieved record market share, with a c.2%pt increase from its FY22 position to 38%, extending its position as "the clear market leader". It also states that the first phase of its Home strategy is progressing well, with the extension of its upholstery exclusive brand partnerships to bed frames, and the completion of IT development and logistics enabling activities contributing to beds and mattresses to achieve YoY online order growth of +70%.
Two new Sofology showrooms opened during the period, with the brand now present in 57 locations, while the integration of the Sofa Delivery Company has been completed, with the same infrastructure being used to deliver DFS and Sofology orders, driving cost savings.
DFS' order bank remains elevated, equivalent to some £4m of profit, which it expects to realise through H2. The retailer says that cost headwinds are abating, and profit margins are expected to improve in H2 of FY23 onwards, and beyond. FY23 profit before tax and brand amortisation is expected to be in a range of £30-£35m – in line with market consensus, but towards the lower end of the retailer's previous guidance.
Tim Stacey, group CEO, says: "I'm pleased to report that the group has extended its long track record of achieving market share gains in a challenging market to what are now record levels. We expect our profit for the year to be between £30-£35m in line with external expectations.
"The share gains have gone some way to alleviating the impact of the weaker market we have observed in 2022 overall. Those gains built throughout the period with the group delivering strong order intake growth in the second quarter. The order intake momentum has continued through the important winter sale period.
"Profit margins have reduced over the last year due to a combination of significant cost increases and our commercial strategy to ensure that we continued to offer great value for customers in an environment where consumer discretionary spend was under pressure.
"We have however improved our gross margins in the first half of this year from H2 of FY22 and further still in the second half to date through product innovation and selected retail price increases. Cost headwinds are reducing and in some cases reversing and we expect our upward gross margin trajectory to continue as we execute our margin build-back plan.
"At our capital markets day in March 2022 we set out our ambitions to grow revenues to £1.4b and operate at an 8%+ PBT margin, generating post tax free cash flows of 75%+. We continue to target that level of financial performance and have solid plans in place to deliver this.
"Our disciplined approach to investment, data-led innovation, entrepreneurial culture, scale advantages and strong operational execution will support a continuation of our long-term trend of market share growth."
DFS says it has plans in place to rebuild gross margins, with an anticipated FY23 H2 rate of some 56% (compared to the H1 rate of 53.8%), as it targets a c.58% exit rate in FY24.
