DFS profits plummet as supply chain issues and inflation take toll

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DFS profits have plummeted as the retailer blamed supply chain issues, double-digit inflation and staff shortages for the slump.

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DFS reported a 44.8% drop in underlying profit before tax for the 52 weeks to June 27, 2022

For the 52 weeks to June 27, 2022, the furniture retailer reported a 44.8% drop in underlying profit before tax from continuing operations excluding brand amortisation to £60.3m, while reported profit before tax slipped 43% to £58.5m.

Sales were up 8.5% to more than £1.1bn, while revenue from continuing operations, excluding Sofa Workshop, grew by £192.4m or 20.1% compared with the non-Covid-disrupted pro-forma FY19 period.

The retailer said the online mix of 22.7% was still significantly ahead of the pro-forma FY19 period but had now begun to normalise after the surges of Covid.

The retailer suffered a £12.8m loss in profits from the closure of both its Netherlands and Spain businesses, as announced in March 2022.

In terms of current trading, DFS said it had seen group orders soften markedly in the last quarter of FY22 and the first quarter of this period, relative to pre-pandemic levels, reflecting the furniture market more generally.

It has presented three alternative scenarios for performance in the financial year, showing an outturn for profit before tax and brand amortisation of between £20m and £54m based upon assumptions of an average market order volume decline relative to pre-pandemic levels of between -15% and -5%.

The £36m profit before tax and brand amortisation outturn in its medium scenario is based upon a market-wide like-for-like order intake volume decline of -10% relative to pre-pandemic levels.

The retailer said it is 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.

DFS chief executive Tim Stacey said: “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 March 15 and stand behind our ambition to grow turnover to £1.4bn and increase our PBT(A)1 profit margin to over 8%.”