Trading pick-up sees DFS sitting pretty

The Doncaster-based group said sales fell eight per cent in the first nine months of the year to £447m and earnings dropped 21 per cent to £44.5m amid challenging trading conditions, but there was an increase in earnings in the third quarter.

DFS chief executive Ian Filby said: “We saw a year-on-year increase in EBITDA in the third quarter and we see improving sales trends in the fourth quarter when new stores will start to contribute.

“Our sales have got better as the year has gone on.”

At the start of the year, DFS forecast that conditions wouldn’t get any better in 2012, but they wouldn’t get any worse than 2011.

“We’d planned 2012 to be the same as 2011 so flat like-for-like sales rather than negative. That’s the place we’re in.”

Sales will improve in the fourth quarter following the opening of 12 new stores this year including sites in Huddersfield and Sheffield.

“Our expansion programme remains firmly on track with 11 new stores opened during the first nine months of our financial year including our first store outside the UK in Dublin, which began trading at Easter,” said Mr Filby.

“These new stores are performing well. In May we opened the twelfth new store of our current year in Tottenham Court Road, establishing a presence on one of the busiest shopping streets in central London.

“We have also continued to develop our successful and growing online business.”

DFS said it is focused on maximising its market share and increasing the efficiency of its operations.

This delivered an improving trend during the year, with the third quarter benefiting from better margins as the result of more cost-effective media buying.

Mr Filby said the group is pleased with its new advertising campaign which shows various couples, friends and notably families with children who see their sofa as the heart of the home.

While price deals play a part, they are no longer the sole message.

With an advertising budget of just under £100m a year, DFS is the third biggest retail advertiser behind Tesco and Asda.

“We’re incredibly encouraged by the reaction to the new advertising. The impact on consumers will be a long term thing,” said Mr Filby.

He believes the change in people’s perceptions to DFS will be gradual.

“We are aiming to attract people who wouldn’t have visited a DFS before.

“We’re gently trying to change people’s perceptions, but we will need to work at it for three or four years,” he said.

“One in two people interested in buying a sofa come through our doors. I’d like to get more.”

During the nine months to April 28, pre-opening and launch costs of new stores reduced earnings by £3.1m.

There was a further £500,000 expense to expand UK manufacturing capacity by adding additional production shifts at two factories in Carcroft in south Yorkshire and at Long Eaton in Derbyshire.

The group said its expansion has created 500 new retailing and manufacturing jobs in the UK.

“Despite the difficult trading environment for the retail sector, we expect to deliver a robust result for the year,” said Mr Filby.

Sales have fallen this year as fewer people bought new sofas as a result of the double dip recession.

Higher ticket items have been hit with both electrical and furniture sales feeling the pinch.

DFS is forecasting little impact from this summer’s events, but the group is keen to promote its British heritage.

Mr Filby said that few customers realise DFS is the UK’s largest manufacturer of sofas and it hand-makes every suite. “We’re more likely to attract more affluent buyers if we play on our British heritage, ” said Mr Filby.

At the same time, the group is determined not to lose sight of its value for money roots.

Mr Filby hails from high street toiletries retailer Boots.

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