Upholstered furniture retailer DFS has reported record market share gain although sales and profits declined.
According to its preliminary results for the 52 weeks ended 25 June 2023, total sales fell 5.3% to £1.08bn from £1.14bn in 2022. Underlying pre-tax profit from continuing operations was down 49.3% to £30.6m from £60.3m, but was within previously guided forecasts.
DFS sales for the period resulted at £1.12bn, down from £1.16bn, while Sofology sales stood at £298.1m, down from £304.9m.
DFS said that it continued to win share in a “very tough market, extending our market leadership with 2%pts share gain to a record 38% of the UK upholstery market”, while operationally, it is in the “strongest position since the pandemic, reflected in customer experience”.
The company added that a “very weak market and high levels of input cost inflation” were key contributors to the downturn in profits, while plans to recover gross margin rates to pre-pandemic levels of c 58% is “making progress”.
Within the Home category, DFS continued to strengthen the foundations for growth in this £5bn market, with a drop-ship delivery solution launched and exclusive brand partnerships extended to bed ranges, driving online beds & mattress sales, which were up 69% year-on-year.
“We are targeting the £3bn beds and mattresses market first and have expanded our exclusive brand partnerships in the upholstery market with high quality brands such as French Connection, Grand Designs and Joules to cover bed frames,” the group said.
“We have targeted sales of our ranges through our online channels and through dedicated spaces in a select number of showrooms. To fulfil these orders we have developed a drop-ship solution for beds and mattresses with Wincanton which went live in January of this year.”
As part of its ongoing review, the group said it has made “good progress” in “refocusing” the business on its DFS and Sofology brands and The Sofa Delivery Company.
“Continuing to improve productivity across our operations is key to better supporting our customers and to carefully managing our cost base in light of ongoing inflationary pressures. To this end, a full review of the Group’s operating cost base has been undertaken, led by the new CFO – John Fallon (appointed in November 2022), with support from the Group Leadership team and external advisers,” DFS said.
“As a result of this review and given the significant cost increases facing UK manufacturing, we are currently working to consolidate our UK manufacturing base and are consulting with our colleagues on the proposed closure of our smallest factory and the wood mill that supplies it (see related). As part of that process we are working with those colleagues who are impacted to identify alternative opportunities for them at our other manufacturing sites and within the wider Group.”
During the period, the group has implemented 11 DFS showrooms under its new store format, bringing the total to 58 completed over the last four years. Furthermore, the group opened three new Sofology showrooms, bringing the total to 58 stores.
“The new showrooms are performing well and the average return on investment of recent stores trading over 12 months is over 65%,” the group said. “We continue to see opportunities for a total of 65-70 showrooms across the UK and Ireland for the brand.
“The new leadership team at Sofology has also refined and developed a new three-year growth plan called ‘Drive to 25’ that has been approved by the Board and launched internally and which builds on the recent progress on performance and customer satisfaction. The ambition is for Sofology to become the UK’s number 2 sofa retailer, behind DFS.”
Looking ahead, DFS said: “2024 pre-tax profit guidance is for a low single digit year-on-year improvement (range £30m-£35m), supported by continued market share gains and margin improvements. Guidance based on the assumption market volumes decline -5% year-on-year.”
Tim Stacey, Group Chief Executive Officer said: “I want to sincerely thank our colleagues for their truly outstanding and consistently high level of determination and dedication to deliver at their best for the Group, and for their help in getting us to the strongest position we have ever been in terms of market share.
“The Group is operating in one of the toughest economic climates we have experienced. Whilst we are confident the upholstery market will recover, forecasting the specific timing and pace of the recovery is challenging.
“We do, however, expect to generate a modest year on year increase in profit before tax in FY24 despite a relatively weak market in which we expect volumes will continue to decline across the next 12 months. Looking to the future as market volumes recover, we remain confident in achieving the financial performance set out at our Capital Markets Day in 2022 of £1.4bn of revenues at an 8% PBT margin.”