Profits drop 22% at DFS in midst of ‘very challenging’ market
Doncaster-based DFS Furniture has today reported a 22% drop in profits before tax to £50m – down from £64m in the previous year – due to a “very challenging” market environment and uncertain outlook.
The retailer today published its preliminary results for the year to 29 July, which showed that despite gross sales growing by 1% to £991m and revenue standing at £762m, the firm has been impacted in the second half of the year, impacting on revenue and profit. EBITDA was down 12.7% to £82m, from £94m in the previous year.
DFS Chief Executive Officer Ian Filby said: “The UK furniture market continues to be very challenging and the outlook for the sector remains uncertain. Since early July our order intake has however been satisfactory, seeing a limited decline in year-on-year like-for-like order intake that we believe is consistent with the overall furniture retail market and is within the range of our expectations for the full year.”
Filby said the retailer had continued to make good strategic progress across all key areas of growth and that the financial performance reflected the current challenges of the UK furniture market.
DFS acquired Sofology this year and will take on these stores in FY18 subject to regulatory approval. In addition, DFS has agreed a licensing partnership with the British lifestyle brand Joules.
Its UK store network development saw three new 10-15,000 sq ft stores open and the opening of a third small store trial in Crawley. Stories in the Netherlands is trading in line with expectations and a second store opened in Spain (Malaga).
Filby added: “Although group sales will inevitably be affected by the market environment, we have identified opportunities to drive operating efficiencies and reduce financing costs that are expected to deliver near-term benefits, particularly in the second half of the financial year. Furthermore some pre-opening and similar costs will not recur. Based on these plans and the current market environment, we would expect to achieve modest, second-half weighted profit growth and good cash generation in the current financial year and we continue to have excellent prospects for the longer term.”
Ian Durant became chair of the DFS board in May. He added: “This year has been a challenging one for the Group. Although we saw strong revenue growth in the first six months of the financial year, continuing uncertainty in the economy led to a significant deterioration in the consumer market which impacted sales in the second half of the year.
“The continued weakness of Sterling against the US Dollar has also created a headwind for gross margins, some of which we have been able to mitigate through the actions that we have taken. As a consequence, although revenue was slightly ahead of last year, we have experienced a decrease in reported profit before tax.”
Durant added that in the tougher trading environment the Group continued to progress its strategy and invest in the business. “In the light of the market-wide downturn in demand, revenue growth in the existing store estate is likely to be harder to achieve over the financial year ahead than in the recent past. Therefore while management will continue to pursue the levers of our growth strategy, opportunities to drive operating efficiencies and product margin growth will also be areas of focus. We will also see the benefits of the recent successful refinancing of the Group’s debt on favourable terms.”
