Q4 2026 DFS Furniture PLC Earnings Call

September 24, 2026

Speaker #1: 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.

Speaker #1: Despite a subdued market backdrop, we generated revenue growth of 2.6% and met our strategic goal of 58% gross margin. The commercial discipline flowed through to our bottom line.

Tim Stacey: Despite a subdued market backdrop, we generated revenue growth of 2.6% and met our strategic goal of 58% gross margin. The commercial discipline flowed to our bottom line. We delivered on our upgraded guidance with underlying profit before tax and brand amortization of circa GBP 45 million, up GBP 15 million year on year. Importantly, this operational momentum translated directly into cash and balance sheet strength. We generated GBP 40 million of free cash flow, allowing us to pay down bank debt and reduce our leverage ratio to 0.9 times, down from 1.4 times at the end of FY25. 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 NPS scores up 7% year on year. This is powered directly by our exceptional teams.

Speaker #1: We delivered on our upgraded guidance, with underlying profit before tax and brand amortization of approximately £45 million, up £15 million year-on-year. Importantly, this operational momentum translated directly into cash and balance sheet strength.

Speaker #1: We generated £40 million of free cash flow, allowing us to pay down bank debt and reduce our leverage ratio to 0.9 times, down from 1.4 times at the end of FY25.

Speaker #1: 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.

Speaker #1: Customer satisfaction has reached new highs, with DFS customer NPS scores up 7% year-on-year. This improvement is powered directly by our exceptional teams. Guided by our new DFS Group purpose and values, colleague engagement scores have increased 19% year-on-year.

Tim Stacey: Guided by our new DFS Group purpose and values, colleague 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 sights are fixed on our medium-term targets of GBP 1.4 billion of revenue and 8% PBT margin. In summary, our business is in great shape. We are well-positioned.

Speaker #1: 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.

Speaker #1: 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. Our sights are fixed on our medium-term targets of £1.4 billion of revenue and 8% PBT margin.

Speaker #1: So, in summary, our business is in great shape. We're well positioned, we have our scale, and our updated growth strategy is paving the way for our medium-term potential to be unlocked.

Tim Stacey: We have our scale and updated growth strategy, and it is paving the way for our medium-term potential to be unlocked. With that, I will now hand over to Dominique to walk us through the financials.

Speaker #1: With that, I'll now hand over to Dominique, who will walk us through the financials.

Speaker #2: Thanks, Jim. Before I get into the results, a brief reflection on 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 fit test makes an AI-proof bricks-and-mortar offering.

Dominique Highfield: 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 ChatGPT or Google. Having joined two months before year-end, I want to start by recognizing 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.

Speaker #2: 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. There's a superb understanding of its customer and real pace in responding to how that customer now searches, whether that's ChatGPT or Google.

Speaker #2: Having joined two months before year-end, I want to start by recognizing Tim and the team's execution behind these results. I'm delighted to be here today to bring them to life for you.

Speaker #2: 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 a 160 basis point gross margin expansion and continuous cost discipline, underlying PBT increased by £14.7 million to £14.49 million.

Dominique Highfield: Revenue rose by 2.6% to just under GBP 1.06 billion. Combined with 160 basis point gross margin expansion and continuous cost discipline, underlying PBT increased by GBP 14.7 million to GBP 144.9 million. A key highlight of the financial year is the continued cash performance. We generated substantial free cash flow and reduced bank debt by GBP 38 million to GBP 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. 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: So let's move on to order intake and revenue together. The Group delivered a resilient performance overall. Group order intake was down 1% year-on-year, but remained slightly ahead of the wider market.

Speaker #2: 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.

Dominique Highfield: A strong H1, +2.3% order intake, which led to an upgraded profit guidance in January, followed by a softer H2 due to macroeconomic pressures. Despite the 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. Against this backdrop, the DFS brand delivered full year order intake of -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. Sofology outperformed the wider market with +2.6% order intake growth.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Our Home proposition also grew by 10.9% year-on-year, driven by expanding brand partnerships, targeted marketing, and increased capacity, such as the new mezzanine at DFS Stockton.

Speaker #2: Sofology outperformed the wider market with a plus 2.6% order intake growth. This was driven by a more affluent customer base, strategic range refreshes, its first-ever sale event, and an expansion of our 4-year interest-free credit.

Dominique Highfield: 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. When we step back, our two-year performance highlights the underlying business strength with two-year group order intake up 9.1%. Gross sales grew 2.3% year-on-year, outpacing the 1% decline in order intake due to our major order model lag. Revenue growth marginally exceeded gross sales due to lower interest-free credit subsidy costs from downward SONIA trends in the H1. 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.

Speaker #2: 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 stepped back, our two-year performance highlights the underlying business strength, with two-year group order intake up 9.1%.

Speaker #2: Gross sales grew 2.3% year-on-year, outpacing the 1% decline in order intake due to our major order model lag. Revenue growth marginally exceeded gross sales due to lower interest-free credit subsidy costs from downward SONIA trends in the first half.

Speaker #2: 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.

Speaker #2: Our gross margin, as a percentage of revenue, improved by a further 160 basis points year-on-year to 58%, or 58.1%, marking the group's fourth consecutive year of gross margin progression and achievement of our 58% target.

Dominique Highfield: 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. While this waterfall shows the progression of margin rate, it is important to note the increased sales volume generated an incremental GBP 11 million of gross margin year-on-year. Product margins increased 70 basis points and contributed an incremental GBP 12 million. This is directly supported by our successful consolidation of our buying teams under a single group leadership structure and unlocking efficiencies through supplier rationalization. We have also achieved productivity gains within our own factories. This is a result of continued cost-conscious culture over the previous few years.

Speaker #2: Whilst this waterfall shows the progression of margin rate, it’s important to note that the increased sales volume generated an incremental £11 million of gross margin year-on-year.

Speaker #2: Product margins increased by 70 basis points and contributed an incremental £12 million. This was directly supported by our successful consolidation of buying teams under a single group leadership structure, unlocking efficiencies through supplier rationalization.

Speaker #2: We have also achieved productivity gains within our own factories. This is a result of our continued cost-conscious culture over the past few years. Margin tailwinds further aided our rate, with freight cost reductions contributing £5 million, as container rates normalized, and a favorable USD exchange rate providing a £4 million benefit, being 3 cents favorable year-on-year.

Dominique Highfield: Margin tailwinds further aided our rate, with freight cost reductions contributing GBP 5 million as container rates normalized and a favorable US dollar exchange rate providing a $4 million benefit, being 3 cents favorable year-on-year. In summary, a strong gross margin performance which saw us achieve our 58% target. Turning to operating costs. Underlying operating costs totaled GBP 569 million, an increase of 3%. Bless you. Volume-related costs such as variable distribution costs and sales commissions rose GBP 3 million in line with revenue. Statutory inflationary headwinds of GBP 11 million were concentrated in employment costs. We strategically invested into our brands with an extra GBP 7 million of targeted brand marketing, notably supporting Sofology's return to television advertising and expanding our home proposition. We also committed GBP 6 million into growth and technology investments, including our new Sofology Carlisle showroom. These investments were partially self-funded by GBP 4 million of further cost efficiencies and discipline savings.

Speaker #2: In summary, a strong gross margin performance, which saw us achieve our 58% target. Turning to operating costs: underlying operating costs totaled £569 million, an increase of 3%.

Speaker #2: Bless you. Volume-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.

Speaker #2: We strategically invested in our brands, with an extra £7 million of targeted brand marketing, notably supporting Sofology's return to television advertising and expanding our home proposition.

Speaker #2: We also committed £6 million into growth and technology investments, including our new Sofology Carlyle showroom. These investments were partially self-funded by £4 million of further cost efficiencies and discipline savings.

Speaker #2: 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.

Dominique Highfield: Finally, as a result of continued strong cash generation and concentrated capital expenditure, our depreciation and debt charges reduced by GBP 6 million. We expect it to reduce interest charges in the future as we continue to reduce our debt levels. 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. Turning to cash flow. We delivered a cash inflow of GBP 40.3 million, underpinned by a robust EBITDA increase of GBP 5.7 million. We maintained disciplined investment in future growth with capital expenditure of GBP 27.6 million, funding store refurbishments across both retail brands, a new Sofology showroom, and the expanding of home mezzanines. Concurrently, lower average net debt reduced interest payments by GBP 4.9 million.

Speaker #2: 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.

Speaker #2: Turning to 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 Sofology showroom, and the expansion of home mezzanines.

Speaker #2: 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 supplier payment terms and a small year-end timing benefit.

Dominique Highfield: We generated a working capital inflow of GBP 10.2 million, driven by longer supplier payment terms and a small year-end timing benefit. While this is lower than the FY25 inflow of GBP 24.9 million, we benefited in timing there from a strong H2 trading ramp-up, and FY26 reflects the continued disciplined management. Reflecting the strength in balance sheets, we were pleased to reintroduce a modest interim dividend of 1 pence per share, a GBP 2.3 million cash outflow in the period. Importantly, cash management substantially reduced closing net debt by GBP 38 million to GBP 69 million, bringing leverage down to 0.9 times. Now I would like to reiterate our capital allocation framework, designed to balance the continued strengthening of our balance sheets with strategic growth investments and sustainable shareholder returns. Our first priority is to maintain a healthy balance sheet.

Speaker #2: 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.

Speaker #2: Reflecting the strengths of our balance sheet, we were pleased to reintroduce a modest interim dividend of 1 pence per share, resulting in a £2.3 million cash outflow in the period.

Speaker #2: 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 the continued strengthening of our balance sheets with strategic growth investments and sustainable shareholder returns.

Speaker #2: 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 to 0.9.

Dominique Highfield: We have made excellent progress here, bringing our leverage ratio down over two years from 2.5 times down to 0.9. Debt levels have not only halved over the last two years, but now place us within, but towards the top end of our 0.5 to 1 times target range. Continuing to reduce debt levels remains a key focus. Also a key focus is our second priority, supporting organic growth. We expect our maintenance capital spend to track at approximately 2% of revenue. For FY27, we anticipate a total CapEx spend of GBP 27 million to GBP 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.

Speaker #2: Debt levels have not only halved over the last two years, but now place us within, albeit towards the top end, of our 0.5 to 1 times target range.

Speaker #2: Continuing to reduce debt levels remains a key focus. Also, a key focus is our second priority: supporting organic growth. We expect our maintenance capital spend to track at approximately 2% of revenue.

Speaker #2: 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.

Speaker #2: Finally, with the balance sheet strengthened, the Board is pleased to recommend a final dividend of 2 pence per share, bringing the reinstated full-year dividend to 3 pence per share.

Speaker #2: This importantly reflects our confidence in the business, our focused deleveraging, and disciplined investment for long-term growth. So, what do I want you to take away from my presentation today?

Dominique Highfield: This importantly reflects our confidence in the business, our focused de-leveraging, and disciplined investment for long-term growth. What do I want you to take out of my presentation today? We did see consumer demand impact order intake in the H2. But importantly, the performance has strengthened slightly heading into FY27. 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. This, 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 will hand over to Tim.

Speaker #2: 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.

Speaker #2: This, combined with gross margin progression and cost discipline, drove PBT up 49% year-on-year. The upshot of this has meant strong cash generation, meaningful debt reduction, and the reinstatement of sustainable shareholder dividends.

Speaker #2: Thank you for listening. I'll hand it over to Tim.

Speaker #1: Okay, thank you. Thanks, Dominique. Let's turn our attention to strategy and operational review. The resilient financial results that Dominique just presented are the direct consequence of the strategic progress we've made.

Tim Stacey: Thank you. Thanks, Dominique. Let us turn our attention to strategy and operational review. The resilient financial results that Dominique just presented are the direct consequence of the strategic progress we have made. As we look forward, we have taken the opportunity to make some refinements to our strategy, which I wanted to talk you through now. 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 will 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.

Speaker #1: 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 new group purpose, which is 'furnishing better lives together.'

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Tim Stacey: 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. Before I go through the strategy in more detail, I thought it is worth providing some context as to how we see the market share.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Now, before I go through the strategy in more detail, I thought it was worth providing some context as to how we see the market share.

Speaker #1: Our group's 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 GlobalData.

Tim Stacey: 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 GlobalData. We took share mainly from retail park competitors from 2017 to 2022, with a significant increase in 2021 as a key competitor went out of business. More recently, we have taken share from across the competitor set. Our retail park competitors, the dotted green line here, have recovered some of their share from 2022 onwards at the expense of home multiples and online pureplays. You can see the share of home multiples has been relatively flat over time, with some new entrants emerging and some deprioritizing the upholstery. The share of online pureplays peaked in the COVID pandemic and returned to normalized levels thereafter.

Speaker #1: 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.

Speaker #1: More recently, we've taken share from across the competitor set. Our retail park competitors, the dotted green line here, have recovered some of their share from 2022 onwards, at the expense of home multiples and online Pure Plays.

Speaker #1: You can see the share of home multiples has been relatively flat over time, with some new entrants emerging and some deprioritizing upholstery. The share of online pure plays peaked during the COVID pandemic, returned to normalized levels thereafter, and you can also see, finally, the independent share reducing but then flatlining from 2022 onwards.

Tim Stacey: You can also see, finally, the independent share reducing, but then it has flatlined from 2022 onwards. I guess the key takeaway here is that whatever the environment that we have been operating in, we have strengthened our market leadership position and are currently now at record levels of over 40%. That is three times the size of our nearest competitor, and we do see further increases in future. Now on to 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 have plotted consumer confidence against market size back to 2006.

Speaker #1: I guess the key takeaway here is that, whatever environment we've been operating in, we've strengthened our market leadership position and are currently at record levels of over 40%.

Speaker #1: That's three times the size of our nearest competitor, and we do anticipate further increases in the future. Now, onto market drivers and market size.

Speaker #1: 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.

Speaker #1: 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 and interest rates, resulting in cost of living pressures, as well as ongoing geopolitical uncertainty.

Tim Stacey: Since around 2022, we all know that consumer confidence has been running at relatively low levels as a result of heightened inflation and 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 value is estimated at GBP 3.1 billion for calendar year 2025.

Speaker #1: 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.

Speaker #1: 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 for calendar year 2025.

Speaker #1: 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 about 20% below normalized levels.

Tim Stacey: We have 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 20% below normalized levels. The market has a long way to recover. When it does, given our operational leverage and our market share in our business, the profit opportunity for this group is significant. Let us consider the medium-term opportunity as we see it, which is a four to five-year time horizon. While we will 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.

Speaker #1: 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.

Speaker #1: 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—bless you—our future destination remains unchanged.

Speaker #1: Our strategic building blocks provide a clear, visible roadmap to our medium-term financial targets. Now, 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.

Tim Stacey: Now, our confidence in these targets is anchored in the fact that we do not require a full recovery in the upholstery market to achieve them. Our progression to a 6% PBT margin and GBP 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 have seen good performances from recent investments such as the new Sofology Carlisle showroom and the Bolton refurbishment, and we see an opportunity to add at least 10 new Sofology showrooms with limited cannibalization. We also see an opportunity to enhance our Sofology like for like estate through further showroom enhancements and refurbishments. We are 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.

Speaker #1: 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.

Speaker #1: We've seen good performances from recent investments, such as the new Sofology Carlyle showroom and the Bolton refurbishment, and we've seen opportunities to add at least 10 new Sofology showrooms with limited cannibalization.

Speaker #1: We also see an opportunity to enhance our Sofology 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.

Speaker #1: Second, we will scale our Home proposition, building on the 11% growth achieved this year. We aim to capture non-upholstery 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.

Tim Stacey: 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 GBP 5 billion TAM opportunity, with our primary focus being to capture a greater share of the GBP 3 billion beds and mattresses segment. With the foundational infrastructure now all in place, we are well positioned to scale. We have 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 GBP 100 million of revenue through increasing our physical offer via mezzanine investments in DFS, supplemented by an enhanced online proposition. Following the success of trial mezzanine investments such as DFS Stockton and Aintree, we see scope to add a further 20 plus mezzanines.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Now, following the success of trial mezzanine investments such as DFS Stockton and Aintree, we see scope to add a further 20-plus mezzanines. 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%.

Tim Stacey: These cost around GBP 1.6 million of CapEx each, but we have 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. These growth levers provide a route to an additional GBP 25 million of PBT, at which point we would be operating at around 6% PBT margin.

Speaker #1: We have five of these now, which are good proof points on which to build a strong business case. Third, we are monetizing our logistics platform, the Sofa Delivery Company.

Speaker #1: 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.

Speaker #1: Now, these growth levers provide a route to an additional £25 million of PBT, at which point we'd be operating at around a 6% PBT margin.

Speaker #1: Delivering this, we'll be supported by the £27 to £32 million of total capital expenditure that Dominique outlined for FY27, increasing to around £35 million per year over the medium term to fully fund these opportunities.

Tim Stacey: Delivering this will be supported by the GBP 27 to GBP 32 million of total capital expenditure that Dominique outlined for FY27, increasing to around GBP 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. 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 GBP 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.

Speaker #1: 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 only need 7% of that 20% to recover to achieve our 8% PBT margin and deliver over £100 million of PBT.

Speaker #1: 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 in the upholstery market, our integrated, end-to-end platform gives us both structural and commercial advantages across the value chain, and underpins our 58% gross margin.

Speaker #1: Our scale secures exclusive supplier relationships, which allows us to bring in highly differentiated and exclusive product ranges for our customers. For example, exclusive brands in DFS now represent 45% of the total brand sales mix, featuring household names like French Connection, Jules, and Ted Baker, and we're really proud to work with them.

Tim Stacey: 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, Joules, and Ted Baker, and we are really proud to work with them. We have also recently expanded these partnerships into our growing home category, and we are pleased with the performance we have seen in those brands to date. Our scale also gives us early access to product innovation. We are embedding the very latest technology directly into our furniture to drive higher average order values. Finally on scale, it enables us to secure products at a relatively favorable cost of goods terms.

Speaker #1: 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.

Speaker #1: 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 relatively favorable cost of goods terms. This, together with the fact that we run our own factories and understand the cost of every element of a sofa, underpins our 58% gross margin.

Tim Stacey: 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 have 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. We have always viewed data and technology as critical drivers of our customer propositions and also our operational efficiency. I will 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.

Speaker #1: In terms of marketing scale, we've recently teamed up with Craig Revel Horwood for the Sofology Sofasy campaign, and this has helped increase the brand awareness of that brand by 5% year-on-year.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: That brand is doing fabulously well. In the Discover phase, tools like Bloom Reach Personalization and Augmented Reality In-Room Viewing bridge the gap between the digital and the physical in-store test.

Tim Stacey: 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, sit test. We also see Generative Engine Optimization as a huge opportunity for our group, given the years of investment and initiatives we have made to improve our websites, our digital marketing, and our data. We are 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. Support does not 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 NPS scores. Underpinning this entire customer journey are proven AI capabilities.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Now, underpinning this entire customer journey are proven AI capabilities. Our philosophy at the DFS Group is to use AI to empower our people, believing ultimately that the human touch remains our ultimate differentiator.

Tim Stacey: 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. We are 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 5 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: In terms of colleague capacity, automated query tools support 17,000 customer tickets every month, while cutting admin handling times by five minutes per interaction.

Speaker #1: 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.

Speaker #1: We're upskilling our technology teams, allowing them to use model-agnostic tools, but within a clear governance framework. Second, from a front-ended business perspective, we're using AI tools in both web search, total search, and our showrooms to drive that search-to-sale conversion.

Tim Stacey: We are upskilling our technology teams, allowing them model-agnostic tools but within a clear governance framework. Second, from the front end of the business, we are using AI tools in both web search, total search, and our showrooms to drive that search to sale conversion. Finally, for back office efficiency. Real value here, we believe, comes from reimagining 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. 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 program.

Speaker #1: And finally, for back office efficiency, the real value here, we believe, comes from reimagining end-to-end processes. Moving from AI-assisted tasks to full AI automation, which we think will boost capacity and drive down costs.

Speaker #1: 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 massively.

Speaker #1: 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 Program.

Speaker #1: And 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.

Tim Stacey: 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 are 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. 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: We have thriving colleague networks, each sponsored by a senior executive. These remain central to advancing our inclusion agenda by connecting like-minded colleagues and driving meaningful change across all aspects of the Group.

Speaker #1: 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.

Tim Stacey: 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. 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 cannot thank them enough for their dedication and passion for our group. Okay, turning now to outlook. Just 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.

Speaker #1: 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.

Speaker #1: Our teams are more aligned and 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.

Speaker #1: At this point, 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.

Speaker #1: 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.

Tim Stacey: 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 GBP 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 -2.5% year on year. We believe this represents an encouraging performance in light of the exceptional weather across July and August, and is actually an improving trajectory relative to the second half of FY26.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Finally, on cash—as Dominique outlined—our capex guidance for the year is set between £27 million and £32 million of cash capex, and that will be focused on proving high-return projects that support our growth agenda.

Tim Stacey: Finally, on cash, as Dominique outlined, our CapEx guidance for the year is set between GBP 27 million and GBP 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. Second, market demand. The business is now in the strongest position it has ever been to capitalize when the market starts to recover. In conclusion, we have delivered a strong financial performance in FY26. We have grown profit significantly, achieved the gross margin target, generated strong free cash flow, and deleveraged our balance sheet further. Operationally and from a customer perspective, the business is in great shape.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: So, in conclusion, we've delivered a strong financial performance in FY26. We've grown profit significantly, achieved the gross margin target, generated strong free cash flow, and deleveraged our balance sheet further.

Speaker #1: 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.

Tim Stacey: 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 have got clear scale and growth levers ahead of us to achieve our profit and cash flow targets. Finally, I would like to thank our entire team across our stores, our factories, our distribution centers on the road, our customer service teams, and our support centers 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.

Speaker #1: We have a new group purpose and values, an updated growth strategy, and a highly efficient, vertically integrated platform. We have clear scale and growth levers ahead of us to achieve our profit and cash flow targets.

Speaker #1: Finally, I'd like to thank our entire team across our stores, our factories, our distribution centers, on the road, our customer service teams, and our support centers for their exceptional execution this year.

Speaker #1: Thank you for all your time this morning. Dominique and I will now be very happy to take any questions you may have.

Speaker #2: Morning, Ben from Pam and Libra.

Ben Hunt: Morning, Ben Hunt from Panmure Gordon.

Speaker #3: Morning, Ben.

Tim Stacey: Morning, Ben.

Speaker #2: Just intrigued if you could sort of flesh out a few more details on Carla and Bolton and stock and with the mezzanine. Sort of scribbling down some of the numbers, it looks like you're sort of making pretty good margin on those mezzanine sales that you were talking about.

Ben Hunt: Just intrigued if you could sort of flesh out a few more details on Carlisle and Bolton and Stockton with the mezzanine. Scrolling down some of the numbers, it looks like you are sort of making pretty good margin on those mezzanine sales that you were talking about. Why only 20? Is there anything constraining that, or, given the returns, it feels like we would want to do as much as you can, but any findings or anything you can sort of wax lyrical on, that would be great.

Speaker #2: Why only 20? Is that a sort of a particular is anything constraining that, or I mean, given the returns, it feels like you'd want to do as more as you can, but any findings or anything you can sort of wax lyrical on, that would be great.

Speaker #3: Wax lyrical, Dan. That's a great opportunity, thank you.

Tim Stacey: Wax lyrical, Ben, that is a great opportunity. Thank you.

Speaker #2: Secret Charlters and.

Ben Hunt: Supercharlatan.

Speaker #3: Careful what you wish for, Ben.

Dominique Highfield: Say what you wish, Ben.

Speaker #1: Yeah, Sofology, we've always—I think we have 56 stores in Sofology now. And we, from all the data we see—we have huge amounts of data because DFS has 115.

Tim Stacey: Sofology, I think we have 56 stores in Sofology now. From all of the data we see, we have huge amounts of data because DFS has 115. So we know the towns and cities where there is white space for Sofology. We have all the customer data as the sorts of demographics that a Sofology store would attract. Carlisle is a classic example. Nearest stores geography-wise, you are talking Gateshead, and you are talking back into Scotland. So we can see the white space. We are looking for the right micro location, and as soon as we put that down there with the right sort of marketing, we see good profit opportunities. Payback on that sort of investment is in the region of 2.5 to 3 years, and we see at least 10 locations across the UK to put those down.

Speaker #1: So, we know the towns and cities where there is white space for Sofology. We have all the customer data regarding the sorts of demographics that a Sofology store would attract.

Speaker #1: And Carla was a classic example. Nearest store, geography-wise, you're talking Gateshead, and then you're talking back into Scotland. So we can see the white space.

Speaker #1: We're looking for the right micro location, and as soon as we put that down there with the right sort of marketing, we see good profit opportunities.

Speaker #1: Payback on that sort of investment is in the region of two and a half to three years, and we see at least ten locations across the UK to put those down.

Speaker #1: I think the key thing for us is finding the right micro-location. So we know all of the towns and cities; it's just about finding the right locations in the next few years.

Tim Stacey: I think the key thing for us is finding the right micro location. We know all of the towns and cities, it is just finding the right locations in the next few years. But good payback on them, clear returns on capital, so happy with that. The Bolton refurbishment is taking one of our really, really strong stores in Bolton, great retail park, and just giving it what we have learned from a DFS in terms of reformat, refreshing it, working with the teams to create a really lovely environment for customers, and we do see an uplift in sales performance. Typically, when we have done it in DFS, we have seen at least a 5% uplift in like for like. So that is another good business case for us.

Speaker #1: But good payback on them, clear returns on capital, so happy with that. The Bolton refurbishment is taking one of our really, really strong stores in Bolton.

Speaker #1: Great retail park, and just giving it what we've learned from a DFS in terms of reformat, refreshing it, working with the teams to create a really lovely environment for customers.

Speaker #1: And we do see an uplift in sales performance, and typically, when we've done it in DFS, we've seen at least a 5% uplift in like-for-like.

Speaker #1: So that's a good another good business case for us. Stockton is one of five mezzanines we've put into DFS stores. And now what we've seen consistently is just to reiterate the numbers is around a 25% increase in sales in that particular location.

Tim Stacey: Stockton is one of five mezzanines we have put into DFS stores, and now what we have seen consistently, just to reiterate the numbers, is around a 25% increase in sales in that particular location. The investment is around GBP 1.5 million, GBP 1.6 million. But what you also have, and this is slightly the reason, Ben, around the constraint on them, is you are in the store, and you are relatively disrupting that store for around 18 weeks, around four months. As you can imagine, putting a mezzanine in and doing it in the right way from a health and safety and a colleague point of view. We keep the store trading, so we have to be careful about disrupting the big stores. But in terms of the returns, we are seeing 25% uplift in sales.

Speaker #1: The investments are around one and a half million, £1.6 million. But what you also have—and this is slightly the reason, Ben, around the constraint on them—is that you are in the store, and you're relatively disrupting that store for around 18 weeks, or about four months.

Speaker #1: As you can imagine, putting a mezzanine in and doing it in the right way from a health and safety and a colleague point of view, we keep the store trading.

Speaker #1: So, we have to be careful about disrupting the big stores. But in terms of the returns we're seeing, a 25% uplift in sales gives us a good drop-through on profit.

Tim Stacey: Gives us a good drop-through on profit, and I think the kind of payback is around about three and a half years, IRR between 25% and 30%. So now we have done five of them, we are seeing that consistent return. We have identified the stores that we would like to go to, and I think if he will be listening, our property director, he is rubbing his hands thinking, yes, we are going to be busy. I do think there is 20 at least. We said 20 plus.

Speaker #1: And I think the kind of paybacks are around about three and a half years, IRR between 25% and 30%. So now we've done five of them.

Speaker #1: We're seeing that consistent return. We've identified the stores that we'd like to go to. And I think if our property director is listening, he's rubbing his hands, thinking, yes, we're going to be busy.

Speaker #1: I do think there's at least 20. We said 20-plus.

Speaker #2: And is the £100 million linked to 2020, or could it go beyond that?

Ben Hunt: Is the GBP 100 million linked to 20, or is that could be beyond?

Speaker #1: About half of the £100 million revenue growth is linked to the mezzanine rollout, and it's over a four to five-year period. We've got to balance trying to pay down the debt, making sure we're investing across the piece—not just in mezzanines, but also investing in our maintenance capital, investing in our showroom refurbs, as well as paying returns to shareholders.

Tim Stacey: About half of the GBP 100 million revenue growth is linked to the mezzanine rollout, and it is over a 4 to 5-year period. We have got to balance trying to pay down the debt, making sure we are investing across the piece, not just mezzanines, investing in our maintenance capital, investing in our showroom refurbs, as well as paying returns to shareholders. So that is the balance we are trying to strike, Ben, in terms of the pace of how we do the rollout of mezzanines.

Speaker #1: So that's kind of the balance we're trying to strike, Ben, in terms of the pace of how we do the rollout of mezzanines.

Speaker #4: Jonathan Pritchard at Bill Hunt, Two FMA. The 58% gross margin—you've hit your target. I know you haven't set a new target. Does that mean, because 58 is what you think is the right answer, that if there was a tailwind, if there was an opportunity, you might reinvest any sort of excess margin back into the product, back into the proposition?

Jonathan Pritchard: Jonathan Pritchard at Peel Hunt. Two, if I may. The 58% gross margin, you have hit your target. I know you have not set a new target. Does that mean because 58% is what you think is the right answer, and therefore, if there was a tailwind, if there was an opportunity, you might reinvest any sort of excess margin back into the product, back into the proposition? Secondly, range expansion within DFS, within sofas. Just a bit more color on that, perhaps. You talked about under-penetrated areas, geographically, demographically. Without being commercially sensitive, what sort of things are they?

Speaker #4: And secondly, range expansion within DFS, within sofas. Just a bit more color on that, perhaps. You talked about underpenetrated areas, geographically and demographically. Without being commercially sensitive, what sorts of things are they?

Speaker #1: Okay, that's a good question. Can I take that one, and then you do the margin?

Tim Stacey: It is a good question. If I take that one, then you do the margin.

Speaker #4: Yeah.

Speaker #1: So I'll give you a good example. In central London, our market share is relatively lower than the rest of the country. Most of our stores are all sort of around the circle of the M25—Brent Cross, these sorts of places.

Jonathan Pritchard: Yeah.

Dominique Highfield: Yeah.

Tim Stacey: I will give you a good example. Central London, our market share is relatively lower than the rest of the country. Most of our stores are all around the circle of the M25, Brent Cross, these sorts of places. Central London and the Flats, we all know is a huge opportunity. We can see that data. We have just launched a range in partnership with Manoir actually, called OnCloud9, and basically, imagine a sofa in a box, like a mattress in a box, and you can lift it. You literally open up the box and the sofa appears. It has got no wooden frame, and it can be lifted up into flats, into lifts, and it creates this amazing sofa, and it is a hugely exciting opportunity, particularly for Central London. It is that sort of thing that we are looking at.

Speaker #1: So, central London and the flats—we all know—is a huge opportunity. We can see that data. We've just launched a range, in partnership with Manwar actually, called On Cloud Nine.

Speaker #1: And basically, imagine a sofa in a box. It's like a mattress in a box, and you can literally open up the box, and the sofa appears.

Speaker #1: It's got no wooden frame, and it can be lifted up flat into flats, into lifts. And it creates this amazing sofa. It's a hugely exciting opportunity, particularly for central London.

Speaker #1: It's that sort of thing that we're looking at. So, what we're looking at from the data is where our market is, because we can see every postcode that we deliver into across the country.

Tim Stacey: What we are looking at from the data is where our market. Because we can see every postcode that we deliver into across the country. We can see where our market share is by postcode. We know in Central London, big opportunity. What is the product innovation that is going to unlock that? Those products are priced for GBP 699, GBP 799, great value. They actually sit beautifully and can be delivered in a box, and quickly, within three or four days, which is typically customers in Central London would want. Good margins, very excited about it. That is a sort of example. Through to you then look at some like the Amanda Holden range, which is a big first for us in terms of a real influencer and a public figure. She has got a fantastic style, and that appeals to a segment of customers that perhaps we were not getting to.

Speaker #1: So we can see where our market share is by postcode. So we know in central London, there's a big opportunity. What's the product innovation that's going to unlock that?

Speaker #1: So those products are priced at £699 and £799—great value. They actually sit beautifully and can be delivered in a box, and quickly, within three or four days, which is typically what customers in central London would want.

Speaker #1: Good margins, very excited about it, and that's the sort of example. Through Q2, you then look at some of the Amanda Holden range, which is a big first for us in terms of a real influencer and a public figure.

Speaker #1: She's got a fantastic style, and that appeals to a segment of customers that perhaps we weren't getting to. So that's how we think about using brands and looking at the data to try and unlock some opportunities.

Tim Stacey: That is how we think about using brands and looking at the data to try and unlock some opportunities.

Speaker #1: Okay? Margin sustainability?

Dominique Highfield: Margin.

Speaker #5: Yeah, so we're really pleased to have hit our 58% target on margin and grown 160 bps. And I think it's fair to assume that that remains constant.

Tim Stacey: Margin sustainability.

Dominique Highfield: Yes. We are really pleased to have hit our 58% target on margin and growing 160 bps. I think it is fair to assume that remains constant. We have got some tailwinds coming through to offset the headwinds, and we are keen to keep that target as is. I think your question around would we invest it further, what we are seeing at the moment is if we do have additional margin, is we have an opportunity to invest in our performance marketing, which is a strong lever to help drive revenue for online growth. We do see that come through. We have got a very clever profit model. People much clever than Tim and I.

Speaker #5: We've got some tailwinds coming through to offset the headwinds, and so we're keen to keep that target as is. I think your question around would we invest it further—what we're seeing at the moment is, if we do have additional margin, we have an opportunity to invest in our performance marketing, which is a strong lever to help drive revenue drop-line growth.

Speaker #5: We do see that come through. We've got a very clever profit model. People watch—cleverer than Tim and I. Sorry, Tim. So we understand our customer and how to drive extra revenue through that performance marketing lever.

Tim Stacey: Yeah

Dominique Highfield: Sorry, Tim. We understand our customer and how to drive extra revenue through that performance marketing lever.

Speaker #1: Yeah, that's true. And hello.

Tim Stacey: Yeah. That is true, Anne, hello.

Speaker #6: Thanks. It's Anne Critchlow from Berenberg. Two questions, please. So you've just referenced performance marketing, but I wondered if you could give me a bit more detail about marketing plans in general.

Anne Critchlow: Thanks. It is Anne Critchlow from Berenberg. Two questions, please. You have just referenced performance marketing, but I wondered if you could give me a bit more detail about marketing plans in general, any particular weighting into the H1 and H2, and what your thoughts are about the conventional traditional marketing channels and digital and AI, and the split of how spend might shift over the years. Then secondly, just any thoughts on the replacement cycle. Looking forward perhaps to 2028, which I guess would be seven-ish years since the pandemic bubble, and whether that played any part in your medium-term targets, and thoughts there. Thank you.

Speaker #6: Is there any particular weighting between the first half and second half, and what are your thoughts on conventional traditional marketing channels, digital, and AI?

Speaker #6: And the split of how spend might shift over the years. And then, secondly, just any thoughts on the replacement cycle. So looking forward, perhaps to 2028, which I guess would be seven-ish years since the pandemic bubble.

Speaker #6: And whether that played any part in your sort of medium-term targets and thoughts there. Thank you.

Speaker #1: That's a good question. So, I think in terms of marketing, we're actually really excited about the geo opportunity, and the teams have been working really hard with good partners to measure exactly where we are in terms of visibility with total search, including the ChatGPTs of this world.

Tim Stacey: That is a good question. I think in terms of marketing, we are actually really excited about the GEO opportunity, and the teams have been working really hard with good partners to measure exactly where we are in terms of visibility with total search, so including the ChatGPTs of this world. The good news for us is all of the work that we have done for many years on SEO and search and all of those things will actually pay dividends here. The data feeds that we have, the domain scores that we have for our website, which are relatively strong, the SEO scores are relatively strong. Plus the fact that on key external reference sites such as Trustpilot, where we have nearly 700,000 reviews at 4.9 stars, those are key reference points when you look at the total search universe.

Speaker #1: And the good news for us is that all of the work that we've done for many years on SEO and search, and all of those things, will actually pay dividends here.

Speaker #1: So the data feeds that we have the domain scores that we have for our website, which are relatively strong, the SEO scores are relatively strong, plus the fact that on key external reference sites such as Trustpilot, where we have nearly 700,000 reviews at 4.9 stars, those are key reference points when you look at the total search universe.

Speaker #1: So we're already working on alpha tests with Google, ChatGPT, and others. We are at the forefront of this, and the teams are quite excited about expanding our data feeds, looking at all of the imagery that we can create per SKU for both DFS and Sofology, so that we can appear when customers are searching as they are doing.

Tim Stacey: We are working already on alpha tests with Google, with ChatGPT and others, so we are at the forefront of this, and the teams are quite excited about expanding our data feeds, looking at all of the imagery that we can create per SKU for both DFS and Sofology, so that we can appear when customers are searching, as they are doing more and more in this country. We are seeing things like zero-click searches. When you use the AI tool, people then don't go to the website. We need to appear where customers are searching. We understand that universe more. We have got great strength in data feeds. I think more and more of our investment will go to that, Anne, over time. We still see TV as really important to us, and it's a hugely successful returning channel. It's that blend.

Speaker #1: More and more in this country, we're seeing things like zero clicks. So when you go in to use the AI tool, people then don't go to the website.

Speaker #1: So we need to appear where customers are searching. So we understand that universe more. We've got great strength in data feeds. I think more and more of our investment will go to that, Anne, over time.

Speaker #1: But we still see TV as really important to us, and it's a hugely successful returning channel. So it's that blend. I think in terms of half-by-half, it's pretty flat year on year.

Tim Stacey: I think in terms of H1 by H2, it's pretty flat year-on-year. I'm not thinking there's a huge difference in terms of what we are doing. Still see TV as really important to get that awareness out there, but increasingly getting more sophisticated in that total search area. I think the clever people in our teams, as well as the partners that we use, are pretty excited about that opportunity for us. I hope that answers the question. I think in terms of replacement cycle, you are right. The replacement cycle is typically every 7 years. The last time there was a big boom in sofas was the summer of 2020, post-COVID. We know that. In fact, we are due one next year. Now, it's the million-dollar question, isn't it, as to when the market recovers. We can't wait for that. We are positioning ourselves to do that.

Speaker #1: I'm not thinking there's a huge difference in terms of what we're doing. I still see TV as really important to get that awareness out there, but we're increasingly getting more sophisticated in that total search area.

Speaker #1: So yeah, I think the clever people in our teams, as well as the partners that we use, are pretty excited about that opportunity for us.

Speaker #1: I hope that answers the question. I think, in terms of replacement cycle, you're right—the replacement cycle is typically every seven years. The last time there was a big boom in sofas was the summer of 2020, post-COVID.

Speaker #1: We know that. So, in fact, we're due one next year. Now, it's the million-dollar question, isn't it? It's when the market recovers. We can't wait for that.

Speaker #1: We're positioning ourselves to do that. We have the scale and the capacity to upscale. We don't need to invest any more fixed costs in order to flex up.

Tim Stacey: We have the scale and the capacity to upscale. We don't need to invest any more fixed costs in our warehouse and our manufacturing partners. We have got the scale to flex up. I would love to see that coming through. It's not necessarily part of our 4-year plan because it would be a guess as to when it's going to happen. We are ready when it does. With the market share at 40% plus, we know that the drop-through is about 40% on a profit basis. For those who can do the maths, we need about a third of that to recover. Holding our share, holding our margins will generate significant profit. I would love to see it come as soon as possible, but I think and actually, there were some proof points coming through back end of last calendar year, January, February. You could start to see it coming.

Speaker #1: I'd love to see that coming through. It's not necessarily part of our four-year plan, because it would be a guess as to when it's going to happen.

Speaker #1: But we're ready when it does. And with market share at 40%+, we know that the drop-through is about 40% on a profit basis.

Speaker #1: So, for those who can do the maths, we don't need a huge amount; we need about a third of that to recover. Holding our share, holding our margins, will generate significant profit.

Speaker #1: I'd love to see it come as soon as possible, but I think—and actually, there were some proof points coming through the back end of last calendar year: January, February.

Speaker #1: You can start to see it coming. And then, unfortunately, various world events happened, which I am not qualified to comment on. Hey, David?

Tim Stacey: Unfortunately, various world events happened, which I am not qualified to comment on. David.

Speaker #7: Hi, David Hughes from Shore Capital. A couple from me, if I may. Firstly, on the sofa delivery company, obviously we've talked before about how it's a big differentiating factor for you.

David Hughes: Hi, David Hughes from Shore Capital. A couple from me, if I may. Firstly, on The Sofa Delivery Company, we have talked before about it is a big differentiating factor for you and the push into the B2B side of things. How much capacity do you have to take on additional work, assuming the market stays roughly where it is at the moment in terms of your own sales? Secondly, just talking around home versus upholstery. You are seeing some really good growth come through in the home side of things. How does that impact the margin mix, and what kind of moving parts should we expect there?

Speaker #7: And the push into kind of the B2B side of things, how much capacity do you have to take on additional work, assuming the market stays roughly where it is at the moment in terms of your own sales?

Speaker #7: And then, secondly, just talking around home versus upholstery. Obviously, you're seeing some really good growth coming through on the home side of things. How does that impact the margin mix, and what kind of moving parts should we expect there?

Speaker #1: Yeah, good question. Dominic, you take that one. On sofa delivery company, we've got three third-party partners that we're now working with successfully. I think it's fair to say they are delighted with the service that we provide.

Tim Stacey: Yeah, good question. Dominique, you take that one. On The Sofa Delivery Company, we have three third-party partners that we are now working with successfully. I think it is fair to say they are delighted with the service that we provide. We focus on customer service, but we also give them a really competitive price. They want us to do more. I think without going into commercial sensitivities too much, I think the guys have said we are very much open for business and want to take more in. Please drop me an email after this. Of the spare capacity we have at today's levels, we have probably got about another 80% of that which we can sell. I cannot go into too much detail, it is too sensitive, but there is plenty of opportunity for partners to work with us.

Speaker #1: We focus on customer service, but we also give them a really competitive price. And so they want us to do more. I think that, without going into commercial sensitivities too much, we're very much—I think the guys say—we're very much open for business and want to take more in.

Speaker #1: So please drop me an email after this. We've got, probably, about another—of the spare capacity we have at today's levels—we've probably got about another 80% of that which we can sell.

Speaker #1: I can't go into too much detail—it's too sensitive—but there's plenty of opportunity for partners to work with us. We only really have, because of all the fixed costs that we already have, it's only a variable cost that we'll have on top of that.

Tim Stacey: Because of all the fixed costs that we already have, it is only a variable cost that we will have on top of that, and therefore, the prices that we can offer these third parties are really competitive with a great service. It is exciting. The technology has all been opened up now. All of our APIs are ready. We have got a portal, so we can ingest data from third parties and give them that great service any time from now.

Speaker #1: And therefore, the prices that we can offer these third parties are really competitive, with great service. So it's exciting—the technology has all been opened up now.

Speaker #1: All of our APIs are ready. We've got a portal, so we can ingest data from third parties and give them that great service anytime from now.

Speaker #2: And then, Home margin—so, Home, you're right, David. It's grew nearly 11% this year, and the margin is slightly lower, so it's approximately 50%.

Dominique Highfield: Home margin. Home, you are right, David, it grew nearly 11% this year, and the margin is slightly lower, so it is approximately 50%. We will see the percentage rating change. However, the important thing is it is all incremental cash. I think that is really the important thing there. We have got that GBP 3 billion TAM in sofas and a GBP 5 billion TAM in home, and we are really well positioned to take a nice slice of that. Whilst it is a lower percentage margin, it is a nice cash incremental margin.

Speaker #2: And so, we will see the percentage rating change. However, the important thing is, it's all incremental cash. I think that's really the important thing there.

Speaker #2: So we've got that $3 billion TAM in sofas and a $5 billion TAM in home, and we're really well positioned to take a nice slice of that.

Speaker #2: So, whilst it's a low percentage margin, it's a nice incremental cash margin.

Speaker #1: I think it goes a little bit to Jonathan's point as well. If the 58% is the total group number, you will get a bit of dilution as Home grows.

Tim Stacey: I think it goes a little bit to Jonathan's point as well. If the 58% is the total group number, you will get a bit of dilution as home grows. If we do try and grow the upholstery margin, that is probably going to balance out a little bit, David, over time.

Speaker #1: And if we do try and grow the upholstery margin, that's probably going to balance out a little bit, David, over time.

Speaker #3: Thank you, Atai from UBS. A couple of questions, please. The first one is on the shape of the current trading, and also the breakdown in the dynamics between the brands, DFS and Sofology, for that minus 2.5% number.

[Analyst] (UBS): Thank you. It is Hai from UBS. I have a couple questions, please. The first one is on the shape of the current trading and also the breakdown in kind of the dynamics between the brands, DFS and Sofology, for that -2.5% number. The shape through the 12 weeks, whether the exit rate is a bit higher than before, than the beginning. My second question is your margin drivers for next year. Without accounting for the FX and freight, how are you going to drive your product margins going forward, given that you have already done the bulk buying, the group buying, supplier rationalization?

Hai Huynh: Thank you. It is Hai from UBS. I have a couple questions, please. The first one is on the shape of the current trading and also the breakdown in kind of the dynamics between the brands, DFS and Sofology, for that -2.5% number. The shape through the 12 weeks, whether the exit rate is a bit higher than before, than the beginning. My second question is your margin drivers for next year. Without accounting for the FX and freight, how are you going to drive your product margins going forward, given that you have already done the bulk buying, the group buying, supplier rationalization?

Speaker #3: And the shape through the 12 weeks—whether the exit rate is a bit higher than before, than at the beginning. And my second question is: your margin drivers for next year.

Speaker #3: So, without accounting for further FX and price, how are you going to drive your product margins going forward, given that you’ve already done the bulk buying, the group buying, and supplier rationalization?

Speaker #1: Can you say the second one? In terms of the shape, it actually—from a 2.5% number—it’s pretty much exactly the same for DFS and Sofology.

Tim Stacey: I can take the second one. In terms of the shape, actually from a 2.5% number, it is pretty much exactly the same for DFS and Sofology, so no real difference across the 12 weeks. It is very difficult to talk about entry and exit for Q1 because it can be, if you are looking at it on a weekly basis, having been here 15 years, very volatile. At the start of the period, July, if you remember, World Cup is on and we are all very hopeful about England and it is all very hot. So footfall is down and so you can be down. The exit point, if you would have asked me two weeks ago, it was very strong. We had a record August Bank Holiday, fantastic, but the last two weeks have been pretty sunny. We do not really look at it week on week, we look at it quarter on quarter.

Speaker #1: So no real difference across the 12 weeks. It's very difficult to kind of talk about entry and exit for Q1 because it can be if you're looking at on a weekly basis, having been here 15 years, very volatile.

Speaker #1: So, at the start of the period—July, if you remember—we'll cut some, and we're all very hopeful about England, and it's already hot.

Speaker #1: So, footfall's down. And so you can be that. The exit point, if you'd have asked me two weeks ago, is very strong. We had a record August bank holiday.

Speaker #1: Fantastic. But the last two weeks have been pretty sunny, so we don't really look at it week-on-week. We kind of look at it quarter-on-quarter.

Speaker #1: So quarterly, minus 2.5 is better than Q4, better than Q3. And that's despite the hot weather. So that's how we see it.

Tim Stacey: Quarterly, -2.5% is better than Q4, is better than Q3, and that is despite the hot weather. That is how we see it. I think the next couple of months are important for us, so October, November, a big bookings month for a big order intake for us in terms of guaranteed Christmas. We kind of like the sun to switch off, a bit of light drizzle, and get back to just being normal. We do not like the 25 degrees high. Some people do, but we do not.

Speaker #1: I think it's important in the next couple of months, for us—October and November are big booking months, with a large order intake for us in terms of guaranteeing Christmas.

Speaker #1: So we kind of like the sun to switch off, a bit of light drizzle, and get back to just being normal. We don't like the 25-degree highs.

Speaker #1: Some people do, but we don't.

Speaker #2: And then, from a margin perspective—hi, you're right. We did see about 70 basis points of product structural improvements last year, and those aren't one-off.

Dominique Highfield: From a margin perspective, Hai, you are right, we did see about 70 basis points of product structural improvements last year, and those are not one-offs, so we will continue to see those benefits come through. We will annualize the ones we made last year, and we will also continue to see those gains come through. The other thing worth noting in our margins, the reason we have confidence over our 58%, is that we also have the tailwind of FX. So we are largely hedged for FX, 3 cents favorable into FY27. So we have got that nice protection there on our margin.

Speaker #2: They will continue to see those benefits come through. We'll annualize the ones we made last year, and we'll also continue to see those gains come through.

Speaker #2: And the other thing worth noting in our margins, where we certainly have confidence over our 50%, is that we also have the tailwind of FX.

Speaker #2: So we're largely hedged for FX, 0.3 cents favorable into FY27. So we've got that nice protection there on our margin.

Speaker #1: Yeah.

Tim Stacey: Yeah. It is okay.

Speaker #2: Okay.

Dominique Highfield: Okay.

Speaker #1: Okay. I think we've covered all the questions. Thank you very much for your attention. And have a great rest of the day.

Tim Stacey: Okay. I think we have covered all the questions. Thank you very much for your attention, and have a great rest of the day.

Dominique Highfield: Okay.

Dominique Highfield: Awesome.

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Q4 2026 DFS Furniture PLC Earnings Call

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