TIDMDFS
RNS Number : 8818S
DFS Furniture PLC
14 July 2020
14 July 2020
DFS FURNITURE PLC - POST-CLOSE TRADING UPDATE
DFS Furniture plc ("DFS" or "the Group"), the UK's leading
retailer of living room furniture, provides the following update
for the 52 week trading period ended 28 June 2020.
Summary
-- Revenues of c.GBP725m, down by GBP271m year-on-year*, due to
the pause in deliveries to comply with COVID-19 restrictions for
the majority of the final quarter.
-- As a consequence of the delivery suspension, profit before
tax (pre IFRS 16 and brand amortisation) expected to be in the
range of a GBP(56m)-GBP(58m) loss (subject to audit) excluding Sofa
Workshop and Dwell restructuring costs noted below.
-- The Group had been performing in line with expectations in
March, until the lockdown, with order intake up in the second half
year-on-year, and particularly strong in the DFS brand.
-- All operations, other than our websites, were suspended on 23
March. All trading activities, including showrooms, manufacturing
and distribution have resumed full operation.
-- Accelerated online trading throughout both the lockdown
period and since showrooms reopened with online order intake up 77%
year-on-year from 23 March to 12 July.
-- Order intake in showrooms following re-opening has been
markedly above prior year comparatives, reflecting latent demand,
with year-on-year growth of 69% between 1 June and 12 July.
-- Solid financial position with a particularly strong opening
order book for the next financial year that will generate an
incremental revenue benefit of c.GBP100m in FY21 and available cash
resources at period end of just over GBP160m.
*Year-on-year performance is measured against the 52 week pro
forma period to 30 June 2019
Financial results
Prior to the impact of the COVID-19 pandemic, trading during the
second half had been satisfactory, with our Group order intake up
year-on-year, and particularly strong in the DFS brand.
As we recognise revenues upon the delivery of orders to our
customers and due to the pause in deliveries for the majority of
the final quarter, in order to comply with COVID-19 restrictions,
FY20 revenues were down by GBP271m year-on-year to c.GBP725m.
We have taken substantial cost and cash flow actions to protect
the business in the face of this trading disruption. In particular,
we have rephased marketing spend, agreed a reduction in senior
management pay, secured rent deferral agreements with our landlords
and reduced our discretionary operating costs. Government support
through the retail business rates holiday and for the furlough of
over 5,000 of our team members to protect employment levels has
also partly offset the substantial losses that we have incurred due
to the business suspension. Collectively, these actions allowed us
to reduce our monthly cash operating costs in April and May to
beneath GBP14m per month, (GBP20m when including rental payments
deferred to later periods). We also acted quickly in the peak of
the crisis when the duration of the lockdown was unknown to secure
an additional GBP70m working capital facility and GBP64m of gross
equity placing proceeds in order to support the business whilst
operations were paused.
Profitability for the 52 weeks to 28 June 2020 will be
materially impacted by the drop-through of the lower cash margin
from the substantially reduced deliveries relative to prior years,
together with the operating costs over the period of disruption.
Profit before tax (pre IFRS16 and before brand amortisation) is
expected to be in the range of a GBP(56m)-(GBP58m) loss (subject to
audit) excluding the Sofa Workshop and Dwell restructuring and
impairment costs recognised, as noted below in the strategic
update.
PBT
50 52 week pro forma period to 30 June 2019
---------------------------------------------------
(156) Gross profit reduction from GBP271m lower revenues
---------------------------------------------------
+23 Operating cost base actions
---------------------------------------------------
+26 Furlough of employees and rates relief
---------------------------------------------------
= (56 - Expected FY20 PBT
58) (before brand amortisation, restructuring costs
and adoption of IFRS16)
---------------------------------------------------
Operational update
The health and wellbeing of customers and colleagues has been
and always will be our priority. All operations, in line with
government guidance, were paused on 23 March other than order
taking on our websites and part of our small international
business. We have ensured our colleagues have the appropriate
personal protective equipment (PPE) and set up our operational
locations in line with or ahead of Government guidance enabling us
to restart selling, manufacturing and delivering our products in a
safe manner.
Our showrooms were reopened in line with devolved government
timelines. We trialled a small number of showroom openings from 22
May in England with the majority of the remaining English showrooms
open by 29 May. Our NI and ROI, Scotland, Wales and International
showrooms were all open by 22 June. Similarly, with full health and
safety measures implemented, our manufacturing and delivery
operations resumed gradually from the end of May. Our support
centres are also operational; however we are encouraging all
colleagues that can work from home to continue to do so.
We believe that, given the large footprint of most of our retail
showrooms, the current Government-imposed social distancing
measures do not present a material barrier to order intake. Our
manufacturing and final mile logistics activities are also fully
operational having implemented a number of new working practices
and safety measures as we work to produce and deliver orders and
reduce our order book back down to normal levels.
Following the localised lockdown of the Leicester area, we have
temporarily closed our DFS, Sofology and Dwell showrooms on Fosse
Retail Park, Leicester. However, leveraging our safe delivery
practices and in line with Government guidance, we have been able
to continue to deliver to all UK postcodes, including the Leicester
area.
Trading update and financial position
Order intake in our web channels increased significantly in the
lockdown period benefitting from our well invested platforms and
has remained strong since showrooms reopened, up 77% year-on-year
from the start of the lockdown until 12 July.
We have also experienced very strong trading in stores since
reopening with order intake up 69% year-on-year. We believe this
performance materially benefited from latent demand from customers
that would otherwise have completed purchases in late March, April
or May and, given the wider economic uncertainty, we remain
cautious on the outlook for demand.
In preparing for a challenging trading environment, we take some
comfort from a materially higher opening order bank year-on-year,
from which we expect to realise an incremental c.GBP100m of
revenues in the first half of FY21. We have also taken appropriate
action on operating costs, including headcount and marketing
budgets. Retail business rates relief of c.GBP19m will also be
received in financial year FY21, as a result of the rates holiday
until the end of March 2021. Furthermore, following the recently
completed equity placing and the GBP70m temporary working capital
facility secured in April, our available cash resources at the year
end were just over GBP160m.
Strategic update
Our strategy remains unchanged overall. We are, however,
prioritising the core elements of our strategy: Accelerating our
investment in technology and omni-channel initiatives in our
largest brands, DFS and Sofology, given the pace of consumer
behaviour change over the lockdown; leveraging our supply chain
assets to improve Group wide efficiency in our final mile delivery
operations; and achieving property cost savings. We have also
accelerated our work on using data more effectively to drive
marketing efficiency.
We also continue to see the opportunity to grow the Sofology
brand to around 70 showrooms. We have agreed a twelve month
deferral of the opening dates of five previously secured new
locations, in order to allow us to take immediate advantage of
attractive units that may be vacated by distressed retailers on
otherwise fully-occupied retail parks. We are currently in advanced
discussions on a number of these locations.
Reflecting the challenging outlook for our market, we are taking
necessary actions to preserve our future competitiveness. We have
commenced an operational restructuring of Sofa Workshop and Dwell
to improve the returns generated by those brands. Largely driven by
this restructuring, we anticipate that we will recognise non-cash
impairments of acquisition-related goodwill and some limited
property right-of-use assets. We will also incur some limited cash
restructuring costs of less than GBP2m associated with a targeted
reduction in headcount. In total we expect to recognise a P&L
charge of GBP16-GBP18m in financial year FY20 in relation to this
restructuring.
Outlook
Recent trading has been very strong, boosted by latent demand
which we have been able to capture as a result of our ongoing
investment in our best-in-class online offering and a prompt
resumption of our showroom operations. Despite the benefit of this
exceptional recent trading performance and ongoing Government
stimulus packages, we remain cautious on the outlook for the
remainder of 2020 and into 2021, given likely lower consumer
confidence and a potentially slower residential property
market.
Whilst a weak trading environment would impact our short-term
revenue and profits, we have historically prospered in economic
downturns and gained market share. Furthermore, we believe that
recent positive trading illustrates the resilience of the sofa
replacement cycle over longer time frames and supports a view that
the market can return to historical long-term growth rates in due
course.
As the clear market leader with strong brand recognition, high
showroom sales densities and advantageous vertical integration, we
feel well-positioned in both the short and long-term to continue
cash generation and drive shareholder returns.
Comment from Tim Stacey, Group Chief Executive
"The events of the past few months have brought the best out of
our Group, and I am very proud of our fantastic people who
throughout this crisis have voluntarily supported the NHS,
including delivering sofas to around 50 hospitals across the UK and
manufacturing PPE in our factories for local hospital trusts. Our
priority throughout the crisis has been to protect and support our
people and our customers. With their support, and an even stronger
sense of togetherness, we emerge with renewed energy and
purpose".
"I also want to thank our many stakeholders for their firm
support throughout this crisis from our shareholders, banks,
supplier partners, our landlords, the Government and also the
British Retail Consortium for their help and advice. Again, these
relationships are stronger than ever, and we look forward to
developing our Group together".
"Our strong online platforms have served customers well
throughout the lockdown and we have seen consistently high order
intake, which I'm pleased to see has continued as our showrooms
reopened. There is no doubt that consumer behaviours are changing
fast and as such we are accelerating our omni-channel strategy
through increased investment in technology right across the
customer experience".
Enquiries:
DFS (enquiries via Tulchan)
Tim Stacey (Group CEO)
Mike Schmidt (Group CFO)
Liz McDonald (Group Company Secretary)
Phil Hutchinson (Investor Relations)
investor.relations@dfs.co.uk
Tulchan
James Macey-White
Jessica Reid
Amber Ahluwalia
+44 (0)20 7353 4200
dfs@tulchangroup.com
About DFS Furniture plc
The Group is the clear market leading retailer of living room
furniture in the United Kingdom. We design, manufacture, sell and
deliver to our customers an extensive range of furniture products.
The business operates an omnichannel retail network of living room
furniture showrooms and web sites in the United Kingdom and other
European countries, trading through four leading brands. The Group
has been established and developed gradually over 50 years of
operating history. We attract customers through our substantial and
continued investment in nationwide marketing activities and our
reputation for high quality products and service, breadth of
product ranges and price points and favourable consumer financing
options.
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END
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