Stalling economy and a fall in confidence hits DFS Furniture

Firm ‘won’t pass higher costs on to customers’

PROFITS AT sofa chain DFS Furniture took a tumble as consumers rein in spending on big ticket items amid a stalling economy, a fall in confidence and the collapse in the pound.

The Doncaster-based group said pre-tax profits fell 22 per cent to £50m in the year to July 29, while revenue edged up just 0.9 per cent to £762.7m.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “DFS has been hit by a double whammy of slowing consumer demand and rising costs, stemming from a weaker pound.

“Big ticket items like sofas tend to be the first things consumers cut back on when they are feeling the pinch, and a slew of poor sales data from the car industry corroborates that trend. Things don’t look like they are getting much easier either, with DFS expecting weak trading conditions to continue into the next financial year.”

Martin Lane, managing editor of money.co.uk, said: “DFS are no longer perching on a comfy cushion and are starting to feel the impact of uncertain times ahead.

“Shoppers will be tightening their purse strings even further and new furniture may not be at the top their list. The volatile pound has damaged DFS’s profit margins, so we can only hope these costs won’t be passed onto the consumer.”

DFS chief executive Ian Filby said the firm will not pass on higher costs to customers.

“We haven’t been passing on higher costs and we don’t plan to,” he said.

“All our opening price points are competitive. You can buy a three seat fabric sofa for £299 at DFS.”

Instead the firm has a raft of cost cutting plans such as improving the efficiency of its local distribution centres, making savings on logistics and savings on how it services the customer.

“We can improve profits without passing on inflation to customers,” said Mr Filby.

He added that there is evidence that local independent stores are closing down and more shoppers are heading to retail parks that house furniture retailers such as DFS.

“We experienced that between 2008 and 2011. The evidence is that will accelerate,” he said.

He said that consumers are feeling “a bit less confident” and salaries are not increasing at the pace they were, but employment is at an all time high.

“We are very confident we can drive profits forward. This year and next year will be more suppressed than previously, but it’s still growth,” he added.

DFS will benefit from the fact that it produces far more in the UK than its rivals, so it has not felt the blow that some importing firms have experienced.

Mr Khalaf said that despite challenging conditions, DFS is still profitable, and has seen fit to pay both an ordinary and a special dividend this year.

“However with both debt and dividends rising compared to earnings, DFS will need to turn more profits next year to keep its key financial ratios in check,” he added.

DFS flagged in August that profits would take a hit from uncertainty caused by the snap General Election and warm weather, which led to weak trading at its stores.

The retailer said it saw significant declines in store footfall and customer orders from April to June.

Earlier this year DFS acquired rival Sofology in a £25m deal and will take over its chain of 37 UK stores.