DFS says it can now see the new scale of its post-pandemic business – and says that’s 15% larger than before Covid-19. But while sales and profits are well ahead of its pre-pandemic size, supply chain challenges mean that both are below the same time last year.
It says 23.2% of its sales took place online in the first half of the year – a figure that it expects to be its normal since all of the trade was outside of lockdowns. It’s lower than the 25.7% of sales that were online a year earlier, but higher than the 18.4% of sales that were online two years earlier, in pre-pandemic 2019.
The upholstered furniture retailer has continued to invest in its digital channels, and in its stores, opening new Sofology showrooms – now at 54 from 42 two years earlier – and refreshing existing DFS sites, starting with its 50 largest showrooms, with measures including those that reduce energy consumption.
DFS today reported revenue of £561.1m in the half-year to December 26 2021. That’s 2% down on the same period last year, but 15% up on the same time two years earlier.
Pre-tax profits came in at £21.6m – down by 70% on the previous year, but 35.8% ahead of two years earlier.
Supply chain challenges
The fall in pre-tax profits came as Covid-related supply chain challenges hit margin and operating costs to the tune of about £21m. Challenges included Covid disruption, longer lead times from suppliers and disruption of both containers and ports. Covid-19 related absences hit the Sofa Delivery Company hardest, with around 10% of staff off as a result. The retailer spent more on delivery during the period but says that nonetheless, some customers’ experience fell short. DFS says its costs rose by 6% over the period, but that has been offset by a rise in the average transaction value.
Looking ahead
So far in the second half of the year, orders are growing in double digits – with around £175m more in orders than it had at the same time two years earlier – and the retailer expects to meet its previous pre-tax profit expectations.
DFS chief executive Tim Stacey says the business gained market share in the first half of the year “in spite of significant logistics and supply chain challenges” and says its expectations for profits both this year and next are unchanged, thanks to the strong pipeline of orders, which it says should make up for any disruption in its manufacturing or logistics during the current financial year.
Stacey says: “Looking forward, whilst the macro-economic environment remains uncertain, we believe that our scale, brand strength and integrated retail strategy will continue to drive market share gains ahead of the competition. We will continue to invest in our digital platforms, our showrooms, our delivery networks and our UK manufacturing capacity, as well as expansion into other home categories which we believe will continue to drive long term growth and profitability.”
Multichannel strategy
Looking ahead, the retailer says it is now set up for profitable future growth and it will continue to expand into the beds and mattresses market, and into living room accessories, with the target of winning a 4% share of a £4.9bn market by 2026.
Key to that will be its plans to create one common technology infrastructure and source of data for its brands – the Integrated Retail Intelligence System, which will bring together more than 35 sources of data to give a 360 degree view of the group. The solution, which incorporates machine-learning decisions and process automation is expected to give it better market insights, improve customer service and investment decisions, while making marketing more efficient. Its in-house Sofa Delivery Company will also help it to improve the customer experience at the point of delivery, while reducing both its operating costs and carbon footprint. The retailer is also increasing its own manufacturing capacity while sourcing exclusive ranges and brands, and will build central services for its brands.
DFS is a Top350 retailer in RXUK Top500 research.
