Sofa retailer DFS Furniture (DFS) is sitting pretty at the interim stage, according to today's positive half-year trading update which nudges the shares 1.8p higher to 323.8p, some 27% north of last March's 255p IPO issue price. Seasoned retailer and CEO Ian Filby (pictured below) flags continued good sales growth amid healthy furniture market conditions and also assures DFS will pay a progressive interim dividend, underpinned by strong cash generation.


Doncaster-headquartered DFS, a major British manufacturer and the nation's leading upholstered furniture retailer by some stretch, highlights 7% year-on-year sales growth over the 26 weeks to 30 January. This growth mainly reflects brisk business in the pre-Christmas period and builds on the record sales and profits unveiled in DFS' maiden full-year results (8 Oct).

The FTSE 250 constituent is flourishing in a healthy furniture market experiencing ongoing recovery in consumer confidence, housing market activity and consumer credit availability, while forging ahead with key strategic initiatives. These include a rapid-payback store roll out in the UK and Republic of Ireland, the continued development of the website, which is delivering double-digit growth, enhancement of the product range and extending the appeal of the brand, with aspirational buyers being enticed by handmade-to-order products in particular.


DFS is a resilient operator, having grown sales and market share through the recession, and Shares believes the stock should interest growth and income seekers alike. At £3.1 billion, the UK upholstered furniture market remains some 20% below its 2007 sales peak of £3.9 billion. This means there plenty of room to grow for DFS, already with a 25%-plus share and also dipping its toes into the Dutch and Spanish markets.

We are fans of the company's vertically integrated business model – DFS makes, sells and delivers products to customers – as it gives DFS the ability to generate copious cash throughout the business cycle. In line with the policy stated at IPO, investors can expect an increased first half payout. Free cashflow remains robust and DFS guides to an unchanged half-time gearing ratio of circa 1.8 times net debt-to-EBITDA, even after paying out interim and full year dividends together worth a chunky £19.8 million back in December.

Web chart - DFS - Feb 16

DFS' upbeat outlook commentary states: 'Given broadly stable general macro-economic trends in the UK and all strategic initiatives on track, the board believes that the group is in a strong position to sustain its record of sales growth, market share capture and cash generation. Based on the trading performance over the first half, our expectations for the Group's financial performance in the full year remain unchanged.'

For the year to July, Jefferies forecasts a bumper 30.5% pre-tax profit hike to £65.1 million (2015: £49.9 million) and an increase in the total dividend from 9.3p to 12.1p. On these estimates DFS offers a prospective yield of 3.7% as well as offering scope for returns of surplus cash.

Issue Date: 04 Feb 2016