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DFS profit plunges by more than half

“Sofa and living room furniture specialist DFS has reported a fall in both sales and pre-tax profits for the six months to 27 January amid “challenging market conditions”.

The firm said revenue before acquisitions was down by 3.5% to £366.5m, on profits 58.1% lower at £7m.

But when the group’s recent acquisition of the Sofology chain was taken into account, revenues were 4.3% higher.

The company added that more recent performance had improved.

Its shares rose by 6% following the release of its results.

DFS, which owns the Sofa Workshop and Dwell brands as well, also has brand partnerships with French Connection and House Beautiful.

In December, DFS Furniture paid £1.2m for store leases and other assets from failed rival Multiyork, which went into administration in late November blaming difficult trading conditions.

DFS chief executive Ian Filby said: “We have seen a strengthening trading performance across the first half of the financial year and through February into March.

“We therefore remain confident that, despite the current challenging market conditions, the group will deliver modest growth in EBITDA and generate strong cashflow across this financial year, in line with our expectations.”

The overall increase in group revenues, which rose to £396.1m, up from 379.9m, reflected “increasing scale and relative market leadership following the recent acquisition of Sofology,” the company said.

‘Bad place’

The High Street has come under pressure in recent months in the face of increased import costs, reduced consumer spending, online competition and higher overheads including wages and business rates.

As a result, some retailers, including Multiyork and Toys R Us, have failed, while others have closed outlets and cut jobs.

Neil Wilson, senior market analyst with ETX Capital, said the market was in a “bad place” despite recent “encouraging signs”.

However, he added: “Broadly speaking, DFS is managing to handle the broader downturn in retail pretty well.

“The collapse of Feather & Black, Warren Evans and Multiyork, whose assets DFS has acquired, served to indicate the severe pressure on the market and the opportunity for those with enough scale to see it out.”

But DFS was on track to deliver modest earnings growth and strong cash generation this year, he added, helped by the acquisition of Solofogy and “scale, flexibility and the vertically integrated business model”.

“The failure of rivals should no doubt also support growth in sales and market share,” he added.”

Source – BBC News

Excerpt from DFS Half Year Results:

“PERFORMANCE ON TRACK, FULL-YEAR EXPECTATIONS UNCHANGED

 

DFS Chief Executive Officer Ian Filby said:

“We have seen a strengthening trading performance across the first half of the financial year and through February into March.  We therefore remain confident that, despite the current challenging market conditions, the Group will deliver modest growth in EBITDA and generate strong cashflow across this financial year, in-line with our expectations.”

 

Financial Summary:

Group revenue up 4.3% to £396.1 million (2017: £379.9 million) reflecting increasing scale and relative market leadership following the recent acquisition of Sofology

Revenue before acquisitions of £366.5m, down 3.5%, reflecting the expected challenging market environment, but 3.0% higher over a two-year period

US Dollar related gross margin impact in DFS of c. £7 million in period has been fully mitigated, with hedging in place through FY19

Underlying EBITDA before acquisitions of £30.0 million (2017: £32.4 million), in line with our expectations, with the 7.4% decrease reflecting lower revenues.  Benefits of our ongoing operating efficiency programmes now demonstrably flowing through

Profit before tax of £7.0 million, stated after £4.6 million of non-underlying costs and the impacts of acquired businesses, is in line with our expectations, (2017: £16.7 million); basic earnings per share of 2.6 pence (2017: 6.2 pence)

Consistent, strong underlying free cash flow generation of £25.5m (2017: £27.2m)

Interim dividend of 3.7 pence (2017: 3.7 pence)

 

Operational Summary:

Growth strategy on track:

  • Omnichannel approach
  • Double digit growth in DFS online traffic and transactions
  • Gross sales of the Group’s online channels in the last twelve months now over £160m on a pro forma basis

Broadening DFS’s appeal

  • Marketing campaigns delivering further record ratings
  • French Connection, House Beautiful and Country Living partnership ranges, and Joules launch, have together seen growth of 8%

Retail space optimisation

  • Completion of DFS Customer Distribution Centre network with 19th CDC
  • 10 co-located stores opened driving strong growth in Dwell and delivering an average sales uplift of over 15% year-on-year from same space

UK and ROI DFS store roll-out

  • Three new DFS standard-format stores on-track to deliver under 21 months payback with ongoing strong lease-adjusted returns on capital
  • DFS small store trial extended with first retail park format in Chelmsford

International

  • The Netherlands: One new store added and TV marketing commenced
  • Spain: Two stores well established and trading profitably

Sofology acquisition offers significant potential building on strong trading momentum

Record established customer Net Promoter Score achieved

Strong employee engagement maintained, named as a member of the 25 Best Big Companies to Work For”

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