DFS says it will continue to invest in digital while adding and refurbishing stores in its current financial year through its ‘pillar and platform’ strategy, despite a hit to full-year profits caused by “unprecedented” supply chain disruption and a continuing decline in new orders in an uncertain economy.
The furniture retailer will continue to develop its ‘pillar’ brands DFS, Sofology and its new Home bed and mattress-focused business on platforms including IT and technology and its Sofa Delivery Company logistics platform with a vision of leading furniture retailing in the digital age. It says it has gained about three percentage points of market share since its 2019 financial year, that customers have been relatively tolerant of inflation-driven price increases – but that demand has fallen in the recent cost-of-living challenges. At year end the retailer had about 115 DFS and 55 Sofology shops in the UK and Ireland. So far 47 DFS shops have been refurbished to a new format, and two more Sofology shops are being added this year with a medium term target of between 65 and 70.
DFS Furniture group sales reached £1.15bn in the 52 weeks to June 26 2022. That’s 9% higher than a year earlier. The proportion of sales taking place online fell by 12 percentage points (pp) to 22.3%, from 34.3% a year earlier. This, however, is still “significantly ahead” of the same period in pre-pandemic 2019 and, says DFS, now represents a new normal level in the wake of Covid-19. The retailer is now targeting sales of £1.4bn by its 2026 or 2027 full year, depending on the strength of the economy.
Top-line pre-tax profits from continuing operations came in at £60.3m, down by 44.8% from a year earlier, while bottom line pre-tax profits of £58.5m were 43% lower than last time. The figures exclude its Netherlands and Spain businesses, whose closure was announced this March. Discontinued businesses accounted for a loss of £12.8m – more than three times higher than the £3.4m loss reported last time. In the current year it expects that orders will decline by between 15% and 5% compared to pre-pandemic levels, and that pre-tax profits before brand amortisation will fall once more in its current financial year, to between £20m and £54m.
DFS, ranked Top350 in RXUK Top500 research, says that it has both navigated “unprecedented Covid-related supply chain challenges” and absorbed double digit inflationary cost pressures while making “significant progress in understanding our carbon footprint, leading to product and service innovation.” However, it has seen order values soften “markedly” relative to pre-pandemic levels, from the final quarter of its 2022 financial year through to the first quarter of its 2023 year.
The retailer apologised for the delays that some customers have experienced to deliveries and said it has invested in its operations from manufacturing to delivery, while supply chain challenges “have abated somewhat” and inbound logistics costs are now expected to decline by about £9m in both its current and next financial years – having risen by £2m last year.
Tim Stacey, DFS group chief executive, says: “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.”
Looking ahead, Stacey says the UK furniture market will be challenging and the outlook uncertain, adding: “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.”
During the year, DFS set up a Responsible and Sustainable Business Committee which has reviewed an ESG (environmental, social and governance) strategy that is built around supplier relationships. It now aims to offer more sustainable products and a more circular product lifecycle.