DFS Furniture plc

Okay, good morning everyone. Welcome to the DFS Furniture plc four-year results presentation for financial year 2026. I'm pleased to be here today alongside our new CFO Dominique Highfield to take you through our presentation. So turning to the agenda for today's session, I will summarize the highlights of the year and then hand over to Dominique who will share an overview of the financials. From there, I will outline our updated strategy and the capabilities that underpin our competitive advantages as a group. And then I'll also provide an update on our outlook for the full year ahead. Finally, Dominique and I will take questions from the analysts that are here with us in the room. So turning to FY26, we delivered a strong performance in FY26 with our strategy delivering clear, tangible results. Despite a subdued market backdrop, we generated revenue growth of 2.6% and met our strategic goal of 58% gross margin. Furniture plc, Timothy Giles Stacey, Dominique Highfield, Russell Harte, Elizabeth McDonald, Cherie Donnelly, Alex Salden, Nick Smith, Louise Rix Now this performance and capital discipline has given the board confidence to reintroduce our ordinary dividend. Turning to our operational health, the business is performing at record levels. Customer satisfaction has hit new highs with DFS customer MPS scores up 7% year on year. This is powered directly by our exceptional teams. Guided by our new DFS group purpose and values, college engagement scores have increased 19% year on year. Looking further ahead to growth opportunities, we are focused on what we can control from extending our market leadership in core upholstery, which is currently at record levels of over 40%, to unlocking further expansion in the home market, and finally monetizing our platforms. Successful trial investments over the past year have validated our strategy and reinforced our confidence levels in our medium term targets. In addition, when the upholstery market starts to normalize, our operational gearing will result in a high profit drop through and strong cash flow generation. And our sites are fixed on our medium term targets of 1.4 billion of revenue and 8% PBT margin. So in summary, our business is in great shape. We're well positioned. We have our scale, an updated growth strategy, and it's paving the way for our medium term potential to be unlocked. With that, I'll now hand over to Dominique to walk us through the financials.

Thanks, Tim. Before I get into the results, a brief reflection of my first five months. I joined DFS because I love customer-focused retailers, because of the culture Tim and the team have built, and because I believe DFS's SIT test makes an AI-proof bricks-and-mortar offering. Everything I believed coming in has been confirmed and what's genuinely impressed me since joining is how data-led this relationships-led business actually is, with a superb understanding of its customer and real pace on responding to how that customer now searches, whether that's chat, GPT or Google. Having joined two months before your end, I want to start by recognising Tim and the team's execution behind these results and I'm delighted to be here today to bring them to life for you. Turning to our financial results, we see robust P&L progression and strong cash generation. Revenue rose by 2.6% to just under 1.06 billion. Combined with 160 basis point gross margin expansion and continuous cost discipline, underlying PBT increased by 14.7 million to 14.4 million. A key highlight of the financial year is the continued cash performance. We generated substantial free cash flow and reduced bank debt by 38 million to 69 million. Consequently, our bank leverage has fallen significantly to 0.9 times, positioning us within our 0.5 to 1 times target. I'll unpack the specific drivers over the next few slides. So let's get on to order intake and revenue together. The group delivered a resilient performance overall. Group order intake was down 1% year on year, but slightly ahead of the wider market. Performance was split into two distinct halves, a strong first half plus 2.3% order intake, which led to an upgraded profit guidance in January, followed by a softer second half due to macroeconomic pressures. Despite this slowdown, strong margin and cost control enabled us to deliver upgraded profit guidance. Trading across the period also highlighted a divide in how consumers are spending. Higher income consumers remained active, while cost of living pressures caused more cautious spending amongst others. And against this backdrop, the DFS brand delivered full year order intake of minus 2% year on year. Our exclusive brand partnerships however continue to resonate with consumers in spite of subdued demand generating positive year-on-year growth. Our home proposition also grew by 10.9% year-on-year driven by expanding brand partnerships, targeted marketing and increased capacity like the new mezzanine at DFS Stockton. Sophology outperformed the wider market with plus 2.6% order intake growth. This is driven by a more affluent customer base, strategic range refreshes, its first ever sale event and an expansion of our four-year interest-free credit. Importantly, what this performance across brands shows us is the value to DFS Group of having a multi-brand portfolio. FY25 was a tough comparator having gained substantial market share so when we step back our two-year performance highlights the underlying business strength with two-year group order intake up 9.1 percent. Gross sales grew 2.3 percent year-on-year outpacing the one percent decline in order intake due to our made-to-order model lag and revenue growth marginally exceeded gross sales due to lower interest-free credit subsidy costs from downward Sonia trends in the first half. So overall, the group delivered a strong full year order intake performance, building on the significant share gains achieved in the prior year. Moving on to gross margin. Our gross margin as a percentage of revenue improved by a further 160 basis points year on year to 58.1%, marking the group's fourth consecutive year of gross margin progression and achievement of our 58% target. Whilst this waterfall shows the progression of margin rate, it's important to note the increased sales volume generated an incremental 11 million of gross margin year on year. Product margins increased 70 basis points and contributed an incremental 12 million. And this was directly supported by our successful consolidation of our buying teams under a single group leadership structure and unlocking efficiencies through supplier rationalisation. We have also achieved productivity gains within our own factories. This is a result of continued cost-conscious culture over the previous few years. Margin tailwinds further aided our rate with freight cost reductions contributing 5 million as container rates normalised and a favourable US dollar exchange rate providing a 4 million benefit being 3 cents favourable year on year. In summary, a strong gross margin performance which saw us achieve our 58% target. Turning to operating costs. Underlying operating costs total 569 million, an increase of 3%. Bless you. Body related costs such as variable distribution costs and sales commissions rose 3 million in line with revenue. Statutory inflationary headwinds of 11 million were concentrated in employment costs. We strategically invested into our brands with an extra 7 million of targeted brand marketing, notably supporting Sophology's return to television advertising and expanding our home proposition. We also committed 6 million into growth and technology investments, including our new Sophology Carlisle showroom. These investments were partially self-funded by 4 million of further cost efficiencies and discipline savings. And finally, as a result of continued strong cash generation and concentrated capital expenditure, our depreciation and debt charges reduced by 6 million. We expect to reduce interest charges in the future as we continue to reduce our debt levels. So in summary, group cost increases were contained to 3% in spite of inflationary pressures and investment into future growth due to continued debt reduction and strong cost control. Turn into cash flow. We delivered a cash inflow of 40.3 million, underpinned by a robust EBITDA increase of 5.7 million. We maintained disciplined investment in future growth with capital expenditure of 27.6 million, funding store refurbishments across both retail brands, a new sophology showroom and the expanding of home mezzanines. Concurrently, lower average net debt reduced interest payments by 4.9 million. We generated a working capital inflow of 10.2 million driven by longer supply at payment terms and a small year end timing benefit. And whilst this is lower than the FY25 inflow of 24.9 million, we benefited in timing there from a strong second half trading ramp up and FY26 reflects the continued disciplined management. Reflecting the strength and balance sheets, we were pleased to reintroduce a modest interim dividend of one pence per share, a 2.3 million cash outflow in the period. Importantly, cash management substantially reduced closing net debt by 38 million to 69 million, bringing leverage down to 0.9 times. Now I'd like to reiterate our capital allocation framework designed to balance these continued strengthening of our balance sheet with strategic growth investments and sustainable shareholder returns. Our first priority is to maintain a healthy balance sheet. We have made excellent progress here, bringing our leverage ratio down over two years from 2.5 times down to 0.9. Furniture plc, Timothy Giles Stacey, Dominique Highfield, Russell Harte, Elizabeth McDonald, Cherie Donnelly, Alex Salden, Nick Smith, Louise Rix We expect our maintenance capital spend to track at approximately 2% of revenue. For FY27 we anticipate a total capex spend of 27 to 32 million with growth investment focused strictly on high confidence, high return strategic projects that underpin our medium term opportunities which Tim will shortly talk through. Finally, with the balance sheet strengthened, the board is pleased to recommend a final dividend of two pence per share, bringing the reinstated full-year dividend to three pence per share. This importantly reflects our confidence in the business, our focused e-leveraging and disciplined investment for long-term growth. So what do I want you to take out of my presentation today? We did see consumer demand impact order intake in the second half, but importantly, the performance has strengthened slightly heading into FY27. And when we look internally at the proof points of our results, the group achieved its upgraded guidance while slightly outperforming the market due to our winning customer proposition and strategic focus execution. Combined with gross margin progression and cost discipline, this drove PBT up 49% year on year. The upshot of which has meant strong cash generation, meaningful debt reduction, and the reinstatement of sustainable shareholder dividends. Thank you for listening. I'll hand it for Tim.

Thank you. Thanks, Dominique. Let's turn our attention to strategy and operational review. So the resilient financial results that Dominique has presented are the direct consequence of the strategic progress we've made. And as we look forward, we've taken the opportunity to make some refinements to our strategy, which I wanted to talk you through now. So turning to our updated growth strategy, everything now begins with our new group purpose, which is furnishing better lives together. This new purpose frames our growth strategy. First, we'll play to win in the core sofa market by protecting our market leadership position and penetrating underserved customer segments and geographies where we still see clear space for growth. Second, we are building and scaling our home business. While broader home categories represent a total of a 5 billion market opportunity, we are initially targeting the 3 billion beds and mattress segment. By leveraging our brand trust, our marketing power and our third party partnerships, we believe that we can capture more furniture spend and increase customer frequency beyond the longer sofa purchase cycle. Third, we are monetizing our logistics platform, the Sofa Delivery Company, to serve other smaller furniture retailers as a profitable revenue engine. To successfully deliver across these three growth pillars, our business relies on three key enablers. Our scale and vertical integration, our approach to data, technology and AI and our unique people and culture. By combining these enablers, we aim to create distinct competitive advantages that unlock sustainable long-term value. Now, before I go through the strategy in more detail, I thought it's worth providing some context as to how we see the market share. Our group market share by value as shown here on the dark green line at the top of the chart has increased consistently over time to over 40% for the calendar year 2025 as measured by global data. Now we took share mainly from retail part competitors from 2017 to 2022 with a significant increase in 21 as a key competitor went out of business. More recently, we've taken share from across the competitor sets. Our retail park competitors, the Dotter Green Line here, have recovered some of their share from 2022 onwards at the expense of home multiples and online pure plays. You can see the share of home multiples has been relatively flat over time, with some new entrants emerging and some deprioritising upholstery. The share of online pure plays peaked in the COVID pandemic and returned to normalised levels thereafter. And then you can also see finally the independent share reducing, but then it's flatlined from 2022 onwards. I guess the key takeaway here is that whatever the environment that we've been operating in, we've strengthened our market leadership position and are currently now at record levels of over 40%. That's three times the size of our nearest competitor. And we do see further increases in future. Now onto market drivers and market size. Our market is heavily impacted by consumer confidence levels. Around 80% of sofa purchases are replacements and consumers need to feel confident to make that big ticket purchase. You can see that correlation on the right hand chart where we've plotted consumer confidence against market size back to 2006. Since around 2022, we all know that consumer confidence has been running at relatively low levels as a result of heightened inflation in interest rates, resulting in cost of living pressures, as well as the ongoing geopolitical uncertainty. The remaining 20% of purchases are linked to house moves. A buoyant housing market results in more upholstery demand. As you can see on the bottom left chart, property transactions were actually recovering and in growth as interest rates started to reduce from their peak. However, for the last six months, interest rates have held flat for some time and housing transactions have been relatively subdued. Finally, you can see on the right hand chart, the market values estimated at 3.1 billion per calendar year 2025. And we've tried to illustrate here the inflation adjusted market size, which reflects retail price inflation over the last few years. And that indicates that market volumes are still below 20% below normalised levels. So the market has a long way to recover. And when it does, given our operational leverage and our market share in our business, the profit opportunity for this group is significant. So let's consider the medium term opportunity as we see it, which is a four to five year time horizon. While we'll obviously navigate through the near term macro challenges, our future destination remains unchanged. Our strategic building blocks provide a clear, visible roadmap to our medium-term financial targets. Our confidence in these targets is anchored in the fact that we don't require a full recovery in the upholstery market to achieve them. Our progression to a 6% PBT margin and £70 million of PBT is built entirely on controllable levers. First, we will drive upholstery volume growth by leveraging our position as the clear market leader to capture further market share. We've seen good performances from recent investments such as the new Sophology Carlisle showroom and the Bolton refurbishment, and we see an opportunity to add at least 10 new Sophology showrooms with limited cannibalisation. We also see an opportunity to enhance our Sophology Like for Like estate through further showroom enhancements and refurbishments. We're going to continue to invest in the DFS range expansion and development, including exclusive brands where we see opportunities to serve underrepresented customers and geographies. Second, we will scale our home proposition, building on the 11% growth achieved this year, capturing non-upholstery spend across bedrooms and living rooms. This provides a 5 billion TAM opportunity, with our primary focus being to capture a greater share of the 3 billion beds and mattresses segment. With the foundational infrastructure now all in place, we are well positioned to scale. We've expanded our high profile exclusive brand partnerships into our home categories, and this continues to differentiate our offer, particularly in the beds and dining areas. We are confident we can deliver an incremental 100 million of revenue through increasing our physical offer via mezzanine investments in DFS, supplemented by an enhanced online proposition. Now, following the success of trial mezzanine investments such as DFS Stockton and Aintree, we see scope to add a further 20 plus mezzanines. Now, these cost around £1.6 million of capex each, but we've seen an uplift in showroom revenue of circa 25%, paying back in three to three and a half years and delivering an IRR in the range of 25 to 30%. We have five of these now and good proof points on which to build a good business case. Third, we are monetizing our logistics platform, the Sofa Delivery Company, opening up a new business-to-business profit stream with minimal capital investment required. We are currently offering our leading two-person delivery service to three businesses, and we now have the technology and scale to integrate more at scale. Now, these growth levers provide a route to an additional 25 million of PBT, at which point we'd be operating at around 6% PBT margin. Delivering this will be supported by the 27 to 32 million of total capital expenditure that Dominique outlined for FY27, increasing to around 35 million over the medium term per year to fully fund these opportunities. Finally, as I stated before, the upholstery market volumes are around 20% or more below the long term average. Now, given our current market share and our operating gearing, we now only need 7% of that 20% to recover to achieve our 8% PBT margin and deliver over 100 million of PBT. Okay, moving on to our key enablers, starting with scale and vertical integration. Scale is a fundamental competitive advantage for the DFS group. As the clear market leader of the upholstery market, our integrated end-to-end platform gives us structural and commercial advantages across the value chain and underpins our 58% gross margin. The scale secures exclusive supplier relationships which allows us to bring in highly differentiated and exclusive product ranges to our customers. For example, exclusive brands in DFS now represent 45% of the total brand sales mix, featuring household names like French Connection, Jools and Ted Baker, and we're really proud to work with them. We've also recently expanded these partnerships into our growing home category and we're pleased with the performance we've seen in those brands to date. Our scale also gives us early access to product innovation. We're embedding the very latest technology directly into our furniture to drive higher average order values. and finally on scale it enables us to secure products at a relatively favourable cost of goods terms and this together with the fact that we run our own factories and we understand the cost of every element of a sofa underpins our 58% gross margin. Scale in terms of marketing we've recently teamed up with Craig Revel Horwood for Sofology's So Fussy campaign and this has helped increase the brand awareness of that brand by 5% year on year. Moving on to data, technology and AI. Now we've always viewed data and technology as critical drivers of our customer propositions and also our operational efficiency. And I'll start with a little bit of how we bring this to life across the customer journey. We inspire our customers with innovative products such as our Cinesound collection, which brings integrated audio and cinema style comfort directly to your home. That brand is doing fabulously well. In the discover phase, tools like the Bloomreach personalization and augmented reality in-room viewing bridge that gap between the digital and the physical in-store test. We also see generative engine optimization as a huge opportunity for our group. Given the years of investment and initiatives we've made to improve our websites, our digital marketing, and our data, we're already visible on 88% of geo searches in DFS. When it comes to transacting, features like our soft credit check capability and complete at home ordering, where orders can be started in store and completed at home, remove friction from the customer journey. And support doesn't end at the point of order. Our AI chatbots and intelligent call routing deliver fast, proactive customer care all the way through to final delivery, helping support our record MPS scores. Now, underpinning this entire customer journey are proven AI capabilities. And our philosophy at the DFS Group is to use AI to empower our people, believing ultimately that the human touch remains our ultimate differentiator. We use AI to reduce friction, freeing up our teams to focus on high value customer interactions. And we're already seeing big wins on that where we are today. Across logistics, our proprietary Apollo routing engine uses real-time data to optimize final mile schedules for the sofa delivery company, driving a 20% reduction in overtime costs alongside an 18% cut in road miles. In terms of colleague capacity, automated query tools supported 17,000 customer tickets every month while cutting admin handling times by five minutes per interaction. Looking forward, the accelerating pace of this technology creates massive opportunities as we shift from an AI assisted to an AI enabled business. Firstly, around our people. We're upskilling our technology teams, allowing them model agnostic tools, but within a clear governance framework. Second, from the front end of the business, we're using AI tools in both web search, total search and our showrooms to drive that search to sale conversion. and finally for back office efficiency. Now real value here we believe comes from re-imagining end to end processes and moving from AI assisted tasks to full AI automation, which we think will boost capacity and drive down costs. Moving on to culture. Building our high-performing resilient business is hugely enabled by an open, inclusive and customer-focused culture. Now we focus on this hugely as we understand that our people are our greatest asset and are right at the heart of our business. This year we launched a new cultural framework designed and led by our next generation of leaders in FY26 as part of our leadership development programme. This brings all areas of our group under a single core purpose which is now defined as furnishing better lives together. This reflects our collective belief that our responsibility extends far beyond just selling furniture. We're equipping people for better everyday living in their homes and communities. Our purpose is supported by three core values. Customer at our heart, better never stops, and everyone together. and our purpose is reinforced by our newly realigned DFS group charity partnership with BBC Children in Need, which addresses furniture poverty to help vulnerable families turn a house into a home. We have thriving colleague networks, each sponsored by a senior executive, and these remain central to advancing our inclusion agenda by connecting like-minded colleagues, driving meaningful change across all aspects of the group. This year saw the launch of our seventh network, the Mankind Network, bringing together men across the group to support one another and champion positive mental health. Now the impact of embedding this culture is clearly visible in all of our metrics. Our latest internal Your Say survey showed a further strengthening in workforce sentiment with overall colleague engagement rising 19% year on year. Our teams are more aligned, more motivated than ever before, and we can't thank them enough for their dedication and passion for our group. Okay, turning now to outlook. And here I want to address both the near term realities of the trading environment, but also reiterate the confidence we have in the medium term potential of our group. Starting with the near term on the left hand side of the chart. Clearly, macroeconomic pressures persist and the consumer backdrop remains delicately balanced. Our core planning assumption for the whole year is that the market will remain relatively flat. Against this backdrop, we expect to deliver moderate profit growth year on year, driven by our compelling customer propositions and a continued focus on cost control and capital discipline. We remain comfortable with the company compiled consensus, which currently sits at around 48 million of profit before tax. Looking at our current performance, trading through the first 12 weeks has been in line with our expectations, with order intake at minus 2.5% year on year. We believe this represents an encouraging performance in light of the exceptional weather across July and August, and it's actually an improving trajectory relative to the second half of FY26. Finally on cash as Dominique outlined our capex guidance for the year is set between 27 and 32 million of cash capex and that will be focused on proving high return projects that support our growth agenda. Looking beyond the near term, we believe the group is exceptionally well placed to deliver the medium term financial targets. We have multiple levers within our control, growing our upholstery market share, growing our share in home and monetizing our platforms. and second market demand. The business is now in the strongest position it's ever been to capitalize when the market starts to recover. So in conclusion, we've delivered a strong financial performance in FY26. We've grown profits significantly, achieved the gross margin target, generated strong free cashflow and deleveraged our balance sheet further. Operationally and from a customer perspective, the business is in great shape. All of our internal operating metrics are flashing green and we will strive to get better under the better never stops mindset. We have a new group purpose and values, an updated growth strategy, a highly efficient vertically integrated platform. We've got clear scale and growth levers ahead of us to achieve our profit and cash flow targets. I'd like to thank our entire team across our stores, our factories, our distribution centres on the road, our customer service teams and our support centres for their exceptional execution this year. Thank you for your time this morning. Dominique and I will now be very happy to take any questions you may have.