DFS sales up; looks to grow Sofology network and beds market share

Sofa retailer DFS has reported a growth in sales as its refit programme and Sofology rollout boosts performance.

According to its preliminary results for the 52 weeks ended 26 June 2022, total sales rose 8.5% to £1.1bn from £1bn in 2021. Digital revenues represented 22.3% in the year, a reduction from 34.3%, while order intake saw double-digit growth.

Reported pre-tax profit resulted at £58.5m, down 43% compared to its profit of £102.6m last year.

The closure of both the Netherlands and Spain businesses, as announced in March 2022, and presentation as discontinued operations, saw a total loss for the period for discontinued operations at £12.8m.

Meanwhile, DFS has secured a further one-year extension of £215m ESG-linked senior revolving credit facility to December 2024.

During the period, the company opened seven new Sofology showrooms with two further openings planned in the year ahead, while also implementing its DFS store transformation programme, which has now rolled out across 47 stores. These refitted stores are showing ‘enhanced sales growth’ and an ‘average payback period of under 24 months’.

The key differences under the refit programme are improved lighting, better space optimisation, creating clear sight lines and improved accessorising.

“With better zoning of product styles, this helps to strengthen the look and feel of the showroom and gives consistency across the channels. The refit programme has led to an increase of 5% sales across the like-for-like refitted estate, with a typical refit costing around £300k leading to a payback period of under 24 months,” DFS said.

Also, within the year, DFS continued its expansion into the home market with exclusive brand partnerships and significant opportunities to gain market share in the £3bn+ bed and mattresses market by leveraging its existing group platforms. The group plans to grow market share in this division to 4%.

As for Sofology, which saw sales rise by 17% to £304.9m from £269.2m, the group plans to grow its portfolio to 65-70 outlets in the medium-term, targeting revenue of c.£300m at a pre-tax profit margin of 5-7%.

As for current trading, in the fourth quarter of FY22 and first quarter of FY23, order volumes for the Group ‘softened markedly relative to pre-pandemic levels, reflecting a trend seen widely across the furniture industry’.

“The macroeconomic environment remains challenging, given the potential effects of the current high-inflationary environment on consumer behaviour. These show 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%,” DFS said.

The group also confirmed that it plans to invest in its manufacturing platforms over the ‘next few years’ to create the UK’s most ‘responsible, resilient, flexible and efficient manufacturing operation and aim to increase capacity for DFS and Sofology’. 

“We will ensure ESG remains a key priority, therefore our focus will be on ensuring we are as efficient as possible; reducing supply chain delivery miles and reducing product build complexity, whilst continuing to lead on recycled components,” DFS said.

Tim Stacey, Group Chief Executive Officer, added: “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.”

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