DFS today reported a 20% drop in full-year sales and a bottom-line loss following the Covid-19 lockdown, but says online sales grew by 77% year-on-year from the beginning of lockdown until July 12. The business is now seeing a strong recovery in its current financial year.
Since showrooms reopened, orders there also recovered since customers still want to check if a sofa will be comfortable before deciding to buy it. “During lockdown,” the company said in its full-year results today, “the executive team worked hard to put in place all the steps necessary to safely welcome back employees and customers into our showrooms and restart our manufacturing and delivery operations with appropriate safety measures. To facilitate the reopening, we implemented strict social distancing and hygiene measures and introduced a new appointment system for customers which has proved popular.
The retailer is now rolling out its own logistics business. The Sofa Delivery Co, and is also moving to its own Stockwise inventory management system.
DFS today reported revenue of £724.5m in the year to June 28, down by 19.6% from £901m at the same time last year. Pre-tax profits came in at £81.2m down from a profit of £22.4m last time – under previous accounting rules. If this year’s results had been under the same rules, the business would have reported a pre-tax loss of £74.9m.
Most of that fall in sales came from a £270m shortfall as its showrooms, manufacturing sites and delivery network closed for almost three months from March 23, with 90% of staff furloughed. Only its web platform continued to operate, and 500 members of staff continued working. It raised money through a new £70m debt facility and through a £64m equity placing. However, DFS said that year-on-year order growth over the last 12 weeks implied an extra £226m of additional sales in the current year.
DFS group chief executive Tim Stacey said: “While the reported decline in profit is undoubtedly disappointing in headline financial terms, a significant proportion of this profit has already been recovered in the current year as we resumed customer deliveries. The current year has started very strongly with all showrooms now open and our digital channels continuing to grow. We believe that this growth is due to a combination of pent up demand from lockdown, consumers spending relatively more on their homes and the strength of the DFS and Sofology propositions in particular.
“We remain focused on executing our strategy, with agility and pace, and believe that the group is well-placed to further strengthen our market-leading position in the medium term. The events of the past year have allowed us to build an even stronger sense of togetherness. We emerge from the crisis stronger and with renewed energy and purpose.”
Looking ahead, however, it says there is uncertainty regarding the wider economic environment and the potential impact of Brexit. Products are also expected take longer to make, which means the retailer can’t promise pre-Christmas deliveries. “We therefore see a very wide range of potential outcomes, with some of our internal modelling scenarios hypothesising that the upholstery market could be weaker than the 10% year-on-year market declines seen post the global financial crisis,” it said. “Likewise we also do see a potential scenario where demand levels could even stay positive across the year.”
DFS announced in August that it was selling The Sofa Workshop business to Halo Furnishings.
DFS says that it aims to use its influence and scale, as a market leader, to offer sustainable and ethical products while creating more circular product lifecycles. “This starts from sourcing and manufacturing, through to retailing and delivery, before then ensuring the collection and responsible disposal of products at the end of their useful lives,” it said in today’s statement. “As a result, we expect to become more efficient, competitive and innovative without margin dilution to support the long-term sustainability and profitability of the group. We believe this approach to sustainability is expected by our customers and indeed embedding sustainability into everything we do is a key priority for the future.”
Four initiatives launched this year included a wood and leather sourcing strategy, the reduction and recycling of packaging, a ’sofa rescue’ service to reduce the amount of waste product entering landfill and a tree planting initiative working with the Woodland Trust.
Commenting, Matthew Walton, senior retail analyst at GlobalData, said DFS had had an “exceptional positive” start to its current financial year, in results that illustrated the stop-start nature of the furniture sector in 2020.
He said: “Trading conditions from October onwards are likely to deteriorate and dent the demand for big ticket purchases. With no current indication that the government furlough scheme will be extended beyond October, shoppers may start to reconsider making larger purchases. Fears over job security, with unemployment forecast to increase dramatically, and the uncertainty surrounding the end of the EU transition period will also dampen consumer confidence. While we are not expecting another shutdown of non-essential stores, increased restrictions and fear of Covid-19 will mean shoppers are more likely to be hesitant about going to stores and short circuit the current customer journey for upholstery. With healthy cash reserves, DFS is in a strong position, but the next three months are set to remain challenging.”
DFS is a Top500 retailer in RXUK Top500 research.