Following today’s release of DFS’ figures for the 26 weeks to 25 December 2022; Matt Walton, senior retail analyst at GlobalData, a leading data and analytics company, offers his view: “DFS has overcome a challenging summer for orders due to the cost-of-living crisis to outperform the upholstery market with revenues falling by 2.6% to £546.4m (-2.2% on continuing operations after it exited the Netherlands and Spain). Orders deteriorated between April and August as shoppers reined in big-ticket spend as the cost of essentials increased, with DFS reporting that volumes fell by mid-single digits relative to its FY2018/19. This decline in orders was partially counterbalanced by higher average order values through greater innovation and design, as it leveraged design collaborations with French Connection and Grand Designs, along with select price increases, as it benefitted from its pre-pandemic work in appealing to affluent shoppers.
“This topline decline has filtered through to its bottom line as operating profit fell by 14.9% to £68.2m on continuing operations as selling and distribution costs increased, specifically in marketing as it invested in promoting its new beds and mattresses offer and business rates repayments resumed. However, its gross margin improved by 0.3ppts to 53.8% as it passed on these higher costs on a pound-by-pound basis. DFS is aiming to further drive gross margin growth back to pre-pandemic levels with it locking in lower freight rates for 2023 and limiting its interest-free credit offer to 36 months.
“Sofology outperformed DFS over the period as sales increased by 1.0%, aided by opening three new stores. It also leveraged DFS’ vast advertising spend, with its campaigns being fronted by celebrities such as Helena Bonham Carter, to boost awareness. The greater focus on contemporary design has also helped it tap into the greater desire to buy into a new look among furniture shoppers. Sofology has also integrated its offer more into DFS shared platforms, with both fascias using its Sofa Delivery Company delivery offer, which will improve efficiencies and service levels.
“Orders have recovered significantly since September and increased by 18.8% in the final three months of 2022. More shoppers buying on credit helped facilitate this uplift, with levels of credit participation returning to historical levels. This is an exceptional performance considering September’s mini-budget significantly dented consumer confidence. This momentum continued through its Winter Sale period, helping it to keep outperforming the upholstery market to start 2023.
DFS has indicated that orders have started to soften recently, and the furniture market’s prospects remain challenging for the rest of 2023. Consumer confidence is set to remain brittle, and spending will remain suppressed as inflation remains high and as homeowners coming off fixed term mortgages experience a spike in monthly costs. Shoppers buying on credit or dipping into savings has helped support sales, but maintaining the growth seen at the end of 2022 over the remainder of 2023, especially in big-ticket areas, will be tough.”
