DFS says coronavirus makes it impossible to give guidance with certainty about full-year result

DFS Furniture has announced its interim results for the 26 weeks ended December 29 2019.

Revenue was down 5.7 per cent year on year to £488m, which DFS said was expected given the strong comparative period which was boosted by deferred purchases as a result of hot weather in the final quarter of the preceding year.

The group said it is monitoring how the COVID-19 situation evolves and it is hard to predict with any certainty what may happen.

In a statement, DFS said: "We have clear business continuity plans in place to deal with a range of scenarios and we have taken appropriate preventative steps, such as minimising all non-essential business travel, and activating alternative working locations.

"There have been some limited operational impacts to date. Our four Chinese finished goods supplier factories did not re-commence production immediately after the Chinese New Year holiday period and production lead times are currently 2-3 weeks longer than usual. Production volumes are increasing, and when at full capacity our suppliers should be able to rapidly 'catch-up' the current output deficit.

"Across the remainder of the financial year we would usually import an average of just less than £10m (gross sales value) of finished goods from China per week with those goods spending 5-6 weeks being shipped to our UK and European operations for delivery to customers.

"If the production shortfall cannot be made up and delivered ahead of our year end this would result in revenue and profit recognition being deferred to the following year. For every £10m

of gross sales deferred approximately £4m of profit would be deferred and due to the working capital cycle of the business, cash flows would be impacted by around half this amount assuming orders continue to be placed with usual deposit levels."

"This remains a 'live' situation with the risk of the outbreak spreading, potentially causing non-Chinese suppliers (including our internal operations) to halt production.

Furthermore, if the virus spreads across the markets in which we operate and this impacts the willingness of customers to visit public spaces such as retail parks then this would most likely have an impact on our financial performance."

Order intake to date in the second-half has been positive, and it is only within recent days that we have seen any impact on consumer footfall to our showrooms. DFS said.

DFS said it planned to focus on digital and showroom investment and its new delivery operation 'The Sofa Delivery Co' has been launched in Belfast covering all sofa brands.

The Sofology roll-out has accelerated with three new showrooms opened in this year and five secured for the 2021 financial year.

Tim Stacey, Group Chief Executive Officer said: "We continue to make progress on our strategic agenda focused on driving the DFS core business, further developing our group platforms and setting Sofology up for future growth.

"Despite the challenging retail environment, and excluding some isolated systems disruption in Sofa Workshop, our performance over the first half has been as expected, given the exceptional prior year comparative driven by latent demand. In particular we have seen a good performance by the DFS brand in driving conversion and margins and continued online sales growth.

"Trading in the second half for the group has also started satisfactorily with performance in the DFS brand particularly encouraging, with order intake growth year-on-year and good gross margins.

"However, given the uncertainty as to how the current COVID-19 situation will develop it is not possible to give guidance with any certainty for the full-year out-turn. At present we believe our supply chain position should normalise before the financial year end, and it is only in very recent days that we have observed any change in consumer footfall to our showrooms.

"While any disruption to order intake over the key trading periods of Easter and the May Bank Holidays is likely to impact our financial year 2020 results, it is reasonable to believe this may ultimately be transitory in nature; following periods of subdued demand we typically see much of that latent demand returning.

"Notwithstanding the uncertain short-term outlook, we remain confident in the group's financial strength and relative track record of performance in all environments. Furthermore, we believe our leading market position will allow us to drive long term attractive value creation for our shareholders."