DFS full-year profits plunge in ‘very challenging’ furniture market

Pre-tax profit tumbled 22.3% to £50.1m in the 12 months to July 30, while EBITDA fell 12.7% to £82.4m.

DFS’ new chairman Ian Durant attributed falling profits to “continuing uncertainty in the economy”, leading to “a significant deterioration in the consumer market” and impacting sales in the second half of the year.

He added that the weakness of sterling against the US dollar “created a headwind for gross margins”.

Sales were largely flat year-on-year, with revenue nudging up 0.9% to £762.7m.

Strategic progress

The retailer said it faced a “very challenging furniture market environment” in the second half of its year, when sales fell 4%, but insisted it has made strategic progress.

During the period DFS snapped up rival Sofology in a deal – subject to regulatory approval – worth £25m.

It hopes the acquisition of the 37-store chain will broaden its appeal to customers and allow it to leverage Sofology’s “technology-led omnichannel” model.

The retailer has also penned a partnership with Joules to manufacture and sell the fashion retailer’s first sofa collection, which will be rolled out to stores in late 2017.

It opened three new big-box stores in the UK during the period as well as a third trial small store in Crawley.

Online sales grew 10.7% in the year, on top of a 15.6% growth rate the previous year, while the retailer’s partnership brand sales advanced 20%.

As part of the retailer’s strategy to make better use of retail space, it has continued to convert surplus warehouse space and install Dwell shop-in-shops. By the end of the financial year, space at 39 of its stores had been converted.

DFS added that its business in the Netherlands is trading in line with expectations, and opened a second store in Spain during the period.

Chief executive Ian Filby said: “We have continued to make good strategic progress across all our key areas of growth, while our financial performance reflects the current challenges of the UK furniture market.

“Historically DFS has been able to build its market-leading position and generate strong cashflow for shareholders in all environments by leveraging its fundamental strengths.”

Outlook

Looking ahead, the sofa boss said: “Our recent strategic investments and operating efficiency programme support our confidence in our ability to deliver modest profit growth and cash returns in the current financial year and we continue to have excellent prospects for the long term.”

In his statement, Durant warned that “in light of the market-wide downturn in demand, revenue growth in the existing store estate is likely to be harder to achieve over the financial year ahead than in the recent past”.

“Therefore while management will continue to pursue the levers of our growth strategy, opportunities to drive operating efficiencies and product margin growth will also be areas of focus,” he said.

DFS issued a profit warning earlier this year following slumps in footfall and customer orders during April, May and June. At the time, it insisted that was “an industry-wide issue”, sparked by an uncertain economic environment, the snap general election and warmer weather during May and June.