DFS develops 'comprehensive plans' to deal with Brexit

Sofa chain DFS Furniture has seen annual profits surge by nearly a third, but cautioned over "subdued" recent trading amid Brexit uncertainty and a slowdown in the housing market.

DFS has published its full year results.
DFS has published its full year results.

The group posted pre-tax profits of £50.2 million on a pro forma 52-week basis to June 30 against £38.3 million a year earlier as its DFS chain saw a welcome return to sales growth.Like-for-like group sales rose 5.7% and it said all its brands, including recently-bought Sofology, delivered growth.But the firm said sales growth slowed over the second half as order intake eased back, a trend which has continued into the new financial year.Results showed that on a statutory basis, profits for the 48 weeks fell 13.2% to £22.4 million against £25.8 million in the previous 52 weeks.The firm said a 16.2% jump in online sales helped DFS grow like-for-like sales, while Sofology same-store revenues leapt 10.7% higher.Dwell and Sofa Workshop also delivered comparable sales growth.Caroline Gulliver at Jefferies said it was likely that the first half of 2019-20 will be "weak" for DFS.She trimmed profit expectations for the new financial year by around 5% on the back of the slower recent sales at DFS, but said the impact will be short term."We expect DFS to emerge stronger than ever," she added.

In a statement, Doncaster-based DFS said: "The trading environment continues to be challenging, with weak consumer confidence and falls in the number of housing transactions impacting order intake. The outlook for consumer confidence, compounded by the ongoing uncertainty regarding Brexit, has been much talked about in the news media.

"The senior leadership team has developed comprehensive plans to address any short-term dislocation arising from a no-deal Brexit. It is notable that under WTOrules imported furniture is tariff free, which is helpful, but in the medium term the implications of a sustained drop in the value of Sterling and the consequent inflationary effect for imported products is likely to become a key factor affecting consumer confidence for high value household items. The mitigation of this will be a key focus for our team in the coming year."

DFS said it had enjoyed a good trading performance with all brands and channels achieving like-for-like gross sales growth. It said it had witnessed continuing good free flow cash generation and lower leverage.

It also said that good progress is being made following the launch of the new strategy to lead sofa retailing in the digital age.

Tim Stacey, the group chief executive, said: "Our trading performance for the last financial year was good overall, as we continue to execute our new strategy to lead sofa retailing in the digital age. Like-for-like growth across all brands and all channels, especially online and in Sofology, has enabled us to grow our market share and as we celebrate DFS's 50th anniversary, we believe that our Group is well positioned for the long term.

"Recent trading conditions have reflected the increasingly uncertain political and economic backdrop and we have seen reduced levels of footfall across our brands, which we attribute to lower levels of consumer confidence and housing transactions, the two key drivers of the upholstery market. Although we have had some success in driving conversion to mitigate this trend, we note that over the first twelve weeks of financial year order intake levels have been subdued.

"Our financial performance in the year ahead will inevitably be dependent on broader political and economic developments and at this stage it is difficult to predict what will happen specifically within the upholstery market. However, we remain focused on those variables that we can control and on executing our strategy, which we believe puts us in a strong position in the market over the long-term."

Ian Durant, the company's chairman, said: "The group faces a particularly uncertain UK consumer market in the run up to the UK’s departure from the European Union and beyond."However, whilst DFS is not immune to the impact of the continuing political uncertainty, the board considers that the group is well placed to manage short-term market uncertainties and remains confidently committed to developing the group."The group has developed a unique position at the heart of British homemaking over the past 50 years. As the UK’s largest upholstery retailer and manufacturer, we are confident that thestrength, depth and diversity across our brands will see us through the challenges ahead and allow us to take advantage of opportunities to deliver on the expectations of customers and shareholders and continue to provide a rewarding place for our employees to work."