Sofology acquisition drags on DFS profits but boosts revenues
DFS has blamed acquisition costs for dragging down profits, but said its takeover of Sofology was already boosting revenues and that trading was starting to improve.
The furniture company said pre-tax profits tumbled 58 per cent to £7 million in the six months to January 27, down from £16.7 million a year earlier, having taken a hit from acquisitions including its £25 million deal to buy Sofology last year.
The company instead highlighted the 4.3 per cent rise in revenues to £396.1 million logged over the half-year, which it said reflected increasing scale and "relative market leadership" thanks to the takeover.
Without the boost from its acquisitions - including its £1.2 million deal for Multiyork's assets, brand and stores - DFS revenues were down 3.5 per cent at £366.5 million.
The retailer's chief executive, Ian Filby, said he was pleased with the performance, which was in line with company expectations despite challenging conditions across the furniture market.
Retailers across the British high street have been contending with weak consumer spending, as shoppers deal with a squeeze from higher inflation and sluggish wage growth.
However, Mr Filby said there were signs of improvement in recent months.
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 (earnings before interest, taxes, depreciation and amortisation) and generate strong cashflow across this financial year, in line with our expectations."
DFS shares were up as much as 5.8 per cent in morning trading.
Neil Wilson, a senior market analyst at ETX Capital, said the furniture retailer was insulated from the worst of the troubles facing the market thanks to its "scale and flexibility".
"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."
He noted that DFS had been in tough positions before, having dealt with recessions and property market downturns that have stopped consumers splashing out on big ticket items like home furnishings.
"There is no doubt that the market is in a bad place," Mr Wilson added, but said the demise of its competitors may pave the way for further growth.
"Scale, flexibility and the vertically integrated business model are all serving it well, whilst the acquisition of Sofology offers good optionality and strengthens its online/omnichannel offering.
"The failure of rivals should no doubt also support growth in sales and market share."