Sofology acquisition lifts sales at DFS Furniture

DFS Furniture posted a rise in first-half sales on Thursday thanks to its acquisition of Sofology, as it said full-year expectations remain unchanged.

In the 26 weeks to 27 January 2018, gross sales grew 4%. Excluding the benefit of Sofology - the acquisition of which was completed last November - sales were down 3.5% on the previous year but up 3.3% on a two-year comparative. Sofology gross sales rose around 13% over the 2017 calendar year.

During the period, the retailer opened four new UK DFS showrooms and one DFS showroom in the Netherlands, and converted existing leased space within DFS showrooms to accommodate five new Dwell stores and five new Sofa Workshop showrooms.

DFS said the second half should see a stronger year-on-year gross sales trend after like-for-like trading momentum strengthened in the first half.

"We recognise that the living room furniture retail market is likely to remain challenging in 2018, given current consumer confidence levels. However, with the benefits of strategic investments feeding through, our expectations for the full year are unchanged.

"We continue to expect modest growth in EBITDA in the 2018 financial year (excluding the impact of acquisitions), driven by the annualisation of product margin and operating cost efficiencies over the second half of the financial year."

Neil Wilson, senior market analyst at ETX Capital, said sales look challenged, with Sofology "doing all the heavy lifting", but adding that the tough environment was flagged last October.

"As we noted in the last note on DFS, this company has been here before, dealing with recessions and downturns that stops customers splashing out on big ticket items. There is no doubt the market is in a bad place. But management is justified in stressing its ‘fundamental strengths in store sales densities, scale of operations, flexible cost base and vertically integrated business model’. Heft should see it through.

"Moreover, as previously noted, the acquisition of Sofology offers good optionality and broadens the appeal of DFS, as well as strengthening its online/omnichannel offering. Competitors failing won’t hurt, either."

At 1455 GMT, the shares were up 4.1% to 200p.