DFS sales down; first phase of beds growth making progress

Living room and upholstered furniture retailer DFS has reported a decline in half year sales and profit.

According to its latest trading update for the 26-week period ended 25 December 2022, total revenues slipped 2.2% to £544.5m from £556.5m against the same period last year. Pre-tax profit was also down 16% to £6.8m from £22.8m.

Sofology sales were up 2.5% to £148.4m, while DFS sales, including Dwell, declined 1.9% to £557.2m. Digital sales represented 24% of revenues, up by 1% last year. Gross sales, which are recognised on delivery of orders to customers, were down 1.1% to £705.6m.

DFS said that the first phase of its Home strategy is “progressing well” with the extension of its upholstery exclusive brand partnerships to bed frames and completion of IT development and logistics enabling activities contributing to beds and mattresses year-on-year online order growth of 70%.

“The first phase is to grow our share in the £3bn beds and mattresses market. We have been able to utilise our existing upholstery exclusive brand partnerships with the likes of French Connection, Grand Designs, Joules and Cath Kidston to expand these offerings to bed frames. We have targeted sales of our beds and mattress ranges through our online channel and through the use of digital tools such as our ‘swoosh’ large format screens and tablets in our showrooms. In a select number of showrooms we have also utlised some space to include a beds and mattresses section. We have expanded our partnership with Wincanton to develop a drop-ship solution for beds and mattresses which went live in January of this year. This has involved IT system development and integration to enable an end to end view of customer orders and stock management,” DFS said.

Within Home categories, sales of Beds & Mattresses ranges continued to grow strongly, up 57% in the period, in line with expectations, including online growth of c70% as highlighted above. Across its sofa ranges those with added features such as charging points, recliners with memory settings and hidden storage have performed well.

Two new Sofology showrooms opened during the period, with the brand now present in 57 locations as it continues its national roll-out plan, while it has completed the Sofa Delivery Company integration work with the same infrastructure being used to deliver DFS and Sofology orders, which are helping to drive cost savings.

DFS said that underlying profit before tax and brand amortisation of £7.1m and its PBT margin of 1.3% are below historical levels reflecting “very low market wide demand levels in the first quarter” and relatively low gross margin rates to optimise order intake and profits. “We have developed robust plans and are currently implementing them to improve our profitability.”

Tim Stacey, Group Chief Executive Officer, commented: “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 £30m-£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 £1.4bn 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.”

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