DFS adds to high street gloom with weaker growth figures

DFS chief executive Ian Filby said: “Like many other UK retailers, we have seen a softening in demand since the beginning of 2011.”

The Doncaster-based group, the UK’s biggest sofa retailer with 75 sofa stores and five dining furniture outlets, said sales rose 1.8 per cent to £330.7m in the six months to January 29, a sharp slowdown on the 4.2 per cent increase seen in the first quarter.

Underlying profits were flat, up just 0.1 per cent at £41.2m in the half-year.

The second quarter slowdown covered the all-important post-Boxing Day sales period, normally the group’s busiest trading period, which implies a marked downturn over recent months.

The results, which include extra sales from a new store opened in Dundee on Boxing Day, compare with record growth the previous year.

December was hit by the severe weather conditions which crippled many parts of the country.

On top of that trading in the first few months of this year was hit by a fall in demand from January onwards after the VAT sales tax was raised from 17.5 per cent to 20 per cent.

DFS had hoped to benefit from the slump in the housing market as consumers bought more furniture as part of a trend to “improve not move”, but that was before the sharp downturn in consumer confidence this year.

Mr Filby said: “We are pleased by the continued resilience of our financial performance in what remains a demanding trading environment, and against strong comparatives in the prior year.”

He said the business had increased its cash balance to £46.3m from £7m a year ago, which will enable it to open 20 new stores over the next three years.

The group is building a pipeline of new stores as part of a “measured” roll-out programme.

DFS was sold by founder Lord Kirkham to private equity firm Advent International, owner of the Poundland stores, last April for £500m.

It was thought that Lord Kirkham might take the company public again after going private in 2004, but then Advent made its move.

DFS has capitalised on the demise of rivals such as Sofa Workshop and Land of Leather.

The group, which makes some of its own sofas, has grown market share to more than 20 per cent following the struggles of competitors, which have also included SCS Upholstery and Pier. “In tough times, people, particularly if they’re going to pay a deposit, want to put their money in a company they can trust, ” said chairman Richard Baker.

Mr Baker, the former chief executive of Alliance Boots, joined Advent as an operating partner in August 2009, assuming the role of DFS chairman at the time of its acquisition in April.

Following a refinancing in July, which raised £240m via a seven-year senior secured note issue, DFS recently opened sites in Bradford and Inverness. Mr Filby said the group will continue to focus on the areas within management’s control and will build on its well-established brand leadership.

“We will drive our market share by continuing to offer an outstanding proposition and excellent service to our customers, investing in our online service and pursuing our store development programme.”

With each new store employing around 25 staff, Mr Baker said DFS expects to add around 500 extra staff over the next three years.

As well as its stores, the group has three manufacturing centres for sofas at Carcroft in Yorkshire, Long Eaton in Nottinghamshire and Alfreton in Derbyshire.

DFS is the leading retailer of upholstered furniture in the UK. It designs, manufactures, sells and delivers a wide range of upholstered furniture products.

All the furniture is exclusively sold in DFS stores, which the group said cuts out the middleman’s profit.

The group’s interest free credit means customers can pay nothing for the first 12 months then either settle in full or take 36 months to pay the remainder.

Founder’s windfall

LORD Kirkham made around £300m last year from the £500m sale of DFS to private equity firm Advent International.

Following the sale, Lord Kirkham stepped down as executive chairman, 40 years after he set up the firm in a former billiard hall in Doncaster.

Lord Kirkham, a life peer and the adopted son of a miner, floated the business in 1993 before taking it private again in 2004 for £507m.

He was succeeded by retail veteran Richard Baker.