DFS sticks to what it knows and reaps rewards

SOFA giant DFS defied the high street gloom with record earnings, but said it doesn’t expect an early improvement in the tough trading environment.

At a time when other big ticket retailers are suffering, DFS chief executive Ian Filby said the Doncaster-based group understands its customers and has gained market share.

“It’s the old adage of sticking to your knitting,” he said. “We recognise the environment and we offer very good value for money prices. We have made sure that every design and style offers this value.”

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At a time when other retailers are axing staff, Mr Filby said the group has a policy of instant replacement to ensure all stores are fully staffed.

“Each of our stores have 20 or so people working there, which is considerably higher than our rivals,” he said. “We’ve got to make sure we have a full range of people.”

The company reported adjusted underlying earnings of £80m in the year to July 30, up 11.4 per cent on the previous year.

This was despite a 2.2 per cent decline in sales to £638.4m.

DFS described the increase in earnings as a good result despite the very challenging trading environment.

A major draw for customers is the group’s Interest Free Credit deal, which offers four years’ interest free credit. “It’s a really important part of our armoury,” said Mr Filby.

DFS said it is selling across the range not just at the cheaper end of the market.

“You would imagine that customers would be downtrading, but people want brands that they know will still be around in three or four years’ time,” said Mr Filby. “We are seeing good sales from the value end where we offer a £399 three-seater sofa right up to products costing over £2,000.

“People are also going for quality.”

One unexpected bestseller has been a foot stool that can turn into a single sofa bed.

“It’s a cracking product,” said Mr Filby. “It literally folds down into a square foot stool.”

DFS said it is not expecting a recovery in the next financial year.

“Since the start of our new financial year in August we have seen a softening in the economic environment,” said Mr Filby.

The company said that, like all UK retailers, it is operating in a climate of great economic uncertainty and falling consumer confidence.

“This slowed our sales performance through the second half of 2010/11, and we expect that it will continue to affect same store sales in the current financial year,” said Mr Filby.

“Our plans have been made on the assumption that there will be no early improvement in the trading environment, and are once again focused on the areas within management’s control.”

He said these include growing market share by offering an “outstanding proposition and providing excellent service both in store and online”.

The group said it has made progress with its store rollout programme, with 12 new leaseholds secured and 10 new stores scheduled to open during the current financial year.

It opened a new store in Huddersfield two months ago and said that plans for a new store based in Sheffield are in the pipe- line.

The group recently opened stores in Dundee and High Wycombe.

The group said its strong cash generation continues and it had a year-end cash balance of £38.9m, up from £7m in 2010.

“In DFS’s first full year under Advent International’s ownership, our focus on driving market share and improving efficiency has delivered record EBITDA and continued strong cash generation,” said Mr Filby.

“This year’s good results are a testimony to the hard work and commitment of DFS’s people and their determination to deliver great customer service in a most challenging trading environment.”

The group said it will continue to focus on managing margin and costs, maximising cash generation and maintaining a robust balance sheet.

The company has looked very carefully at its costs and is saving money by buying its advertising far more efficiently than be- fore.

DFS is one of the UK’s highest spending retail advertisers.

“Our strategy of continued innovation in products and services, measured store expansion and investment in the DFS brand and our people, will provide a strong platform for profitable growth and DFS has excellent prospects for the future,” said Mr Filby.

From billiard hall beginnings...

Lord Graham Kirkham, the adopted son of a miner, founded DFS in a former billiard hall in Doncaster 40 years ago.

He went on to float the business in 1993 before taking it private in 2004 for £507m.

Lord Kirkham sold DFS to private equity firm Advent International in April 2010 in a deal believed to be worth around £500m.

Today, DFS employs 2,847 people across Britain, including 684 in its Yorkshire heart- land.

Yorkshire remains a key part of the operations – there are 172 staff at the company’s head office and 246 employed in its Doncaster factory.

DFS chief executive Ian Filby believes there’s ample scope for growth.

The retailer’s sights are on expansion, despite the economic storm clouds in Europe and fragile consumer confidence.