DFS defies gloom to make suite dreams come true

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SOFA chain DFS defied the tough retail climate with surging quarterly earnings and pledged continued investment in new stores and the internet.

Doncaster-based DFS said it will create another 200 jobs this financial year by opening more stores and upping output in its three factories. It opens a new store in Cork today – its second in the Republic of Ireland and part of plans to open 20 new stores by mid-2013.

The group is also investing heavily in multi-channel retailing to capitalise on rapidly-changing shopping trends.

“Our internet channel has been growing very healthily,” said chief executive Ian Filby. “We invest in it because it’s the gateway in people coming to visit us. Seventy to 80 per cent of our customers check us out online first. We’re trying to create an experience across our company that people can interact with.”

DFS recently launched a new internet app, which allows customers to see how a sofa would fit into a virtual plan of their home.

“That makes a much more informed customer coming into the store for their furniture,” said the former Alliance Boots director.

DFS now has 92 stores after opening 17 in recent years, three shy of its 95-store target, and Mr Filby said its expansion strategy “does not come to an end at that point”.

“On the whole this is quite a considered purchase,” he said. “The show room model is going to continue to be extremely important.”

The retailer, a rare strong performer in a tough sector, posted underlying earnings up 17.2 per cent year-on-year to £10.2m in the 13 weeks to the end of October.

Sales increased 12.3 per cent to £144m in its first quarter, versus a year earlier. It did not provide a like-for-like sales figure.

Mr Filby said its performance continued a trend seen in the February to July period, when sales improved after a tough first half.

“My competitors are probably finding it tough, having to retrench on advertising and staffing, whereas we’ve got the benefit of our new store opening programme starting to hit. It gives me an efficiency in being able to work all my fixed costs.”

DFS has been investing heavily in UK manufacturing, and recently added a second shift to its plant in Alfreton, Derbyshire, following second shifts at its factories in Carcroft in South Yorkshire and at Long Eaton in Derbyshire. It now employs about 700 of its workforce of more than 3,000 in manufacturing.

Mr Filby said the increasing cost of freight and overseas manufacturing means its is becoming “more and more interesting” to return some production to the UK – without hurting its margins.

DFS now makes about a third of its sofas. “A key positive is reduced lead times,” he added.

Mr Filby said DFS remains one of the highest-spending retailers on advertising, behind supermarkets Tesco and Asda, with an annual budget of just under £100m.

Its advertising campaign shows couples, friends and notably families with children who see their sofa as the heart of the home – part of a strategy to move the chain more upmarket.

Mr Filby said set against a shrinking furniture retailing market, DFS is growing market share. It now has about a quarter of the UK sofa market.

The sector has seen the administration of a host of rivals including Habitat, World of Sofas and Sofa Workshop, as well as a number of smaller chains.

Mr Filby said while DFS has likely benefitted from the demise of rivals, “it has not driven our location policy”. He added opening new sites is easier because “we’re not competing with anybody” and DFS can “negotiate strongly for good terms”.

The group, owned by private equity firm Advent International, ended October with £42.2m of cash, up £15.2m from the end of July.

It spend £0.6m on retail and manufacturing expansion during the six months.

It recently paid shareholders a £17m dividend and is redeeming 10 per cent of its outstanding bonds, worth about £19m.

“A good result for the first quarter of 2012/13 continues the positive performance of last year’s second half,” said Mr Filby.

“Our good performance in the year to date, in what remains a challenging market place underlines the strength of DFS as the UK market leader in upholstered furniture. We remain confident we have the right strategy, proposition and team in place to make this another year of exciting progress for DFS.”