DFS profits fall as cost of living sees sales soften

DFS has revealed that its reported profit before tax has almost halved to £58.5m, down from £102.6m, as rising inflation negatively impacted its supply costs and dampened demand for its products.

In its preliminary results for the 52 weeks ended 26 June 2022, it revealed that revenue from continuing operations was £1.14bn up from £1.06bn the previous year. It added that revenue from continuing operations (excluding Sofa Workshop) grew by £192.4m or 20.1% compared to the non Covid disrupted pro-forma FY19 period.

However, it added that because of rising raw material and haulage costs, the gross profit margin fell 3.6 percentage points to 52.7%.

In current trading it revealed 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.

It added that the macroeconomic environment “remains challenging”, given the potential effects of the current high-inflationary environment on consumer behaviour. It therefore has present three alternative scenarios for performance in the financial year.

It said 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%.

It noted the £36m profit before tax and brand amortisation outturn in its medium scenario is based upon a market-wide like-for-like order intake volume decline of -10% relative to pre-pandemic levels.

Tim Stacey, group CEO, said: “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.”

He added: “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. We will continue to pursue our strategy outlined in our Capital Markets day on 15 March, and stand behind our ambition to grow turnover to £1.4bn and increase our PBT profit margin to over 8%.”