DFS Furniture PLC

LSE:DFS

Earnings Call Transcript 2023-Q2

[Tim Stacey, executive]

Good morning, everyone, and welcome to our financial year '23 interim results presentation. I'm Tim Stacey, DFS Group CEO, and I'm pleased to be here today with John Fallon, our new CFO, who joined the business in November. So, our plan for today is for myself to provide a brief overview of the first half of the year, and then John will cover the financials. I'll then update you on our strategic progress with some concluding thoughts. And then John will join me at the end to take questions from analysts. In terms of half 1, I'm pleased to report that the group has extended its long track record of achieving market share gains in a challenging market to what on our record levels. This has gone some way towards alleviating the impact of the weaker market that we observed in 2022 overall. And those share gains built throughout the period, with the group delivering strong order intake growth in the second quarter. The order intake momentum has continued through the important winter sale period. Profit margins have reduced over the last year due to a combination of significant cost increases and our commercial strategy to ensure that we continue to offer great value for customers in an environment where consumer discretionary spending was clearly under pressure. We have, however, improved our gross margins in the first half of this year from the low point in half 2 of FY '22 and further still in the second half to date. Cost headwinds are reducing and, in some cases, reversing, and we expect our upward gross margin trajectory to continue as we execute our gross margin build back plan. Profit will be second half weighted based on our current forecast order intake performance together with the improvements in gross margin and in line with consensus expectations for the year. So, I'll now provide a brief overview of the market conditions and our performance. So, the market size for upholstery in the U.K. for the calendar year '22 is estimated by global data to be around GBP 3.3 billion. That's broadly in line with 2021, and that reflects higher average order values that include the sector-wise retail price increases we've seen in order to offset the high cost inflation. But in volume terms, looking at a number of different sources, we estimate that market volumes are down around 15% over the last 6 months relative to the pre-pandemic period of FY '19. Now the group has continued to grow its market share, especially in this half, where our share gains accelerated to reach a record of 38% in value terms. This is supported by both our proprietary Barclaycard data set and also global data and represents a record share for the group. We do believe though that there's still plenty of opportunity to grow our share significantly given the highly fragmented market that we operate in. We've seen some pure plays and a large number of independent retailers drop out of the market, continuing a long-term trend and we expect that to continue. We also strongly believe that to win in the upholstery market, we need a strong physical and digital model, and we continue to invest in these areas and our supporting platforms to further strengthen our market-leading position. Now I wanted to summarize for you, 3 areas that we're focusing on as a business. The first is to drive profitable growth, and we see this coming from 3 areas. Firstly, by continuing to grow our share in the upholstery market. And as I've stated, we've got a track record of growing share in difficult economic cycles. And we expect to develop our share further by investing in our DFS proposition, completing our Sofology National showroom rollout plan and probably from the likely exit of smaller competitors. Secondly, driving average order values in upholstery through improved product mix, innovation and selective retail price increases. And thirdly, by executing our home growth strategy, the first phase of which is to focus on the GBP 3 billion U.K. beds and mattress category, which I'll come on to discuss later. The second focus area is to rebuild our gross margins back to pre-COVID levels. Through FY '15, when we first floated to FY '19, we averaged around a 58% gross margin, and we held that within quite a tight range. Since then, we've experienced significant levels of cost inflation that we've sought to pass on to the consumer on a pound-for-pound basis. Now we've already implemented a number of initiatives to rebuild margin in areas such as range development, using our scale to improve our sourcing opportunities. We've changed our interest-free credit offer. And as I said, we put some selective retail price changes through. We do have a significant tailwind from freight rates normalizing and reduced supply chain disruption that will mitigate the impact of things like higher interest rates going forward and also the future dollar rate in FY '24. But more on that later from John. The third area of focus is cost control. Now our annual operating costs, excluding cost of goods, is around GBP 0.5 billion, and we've experienced around an average of 5% inflation here. We're taking action to mitigate this and to lower our costs in absolute terms wherever possible. We will, however, ensure that our growth agenda is protected, ensuring that appropriate levels of investment are made for the future. I'll now hand over to John, who will run you through the numbers.

[John Fallon, executive]

Thanks, Tim. Good morning, everybody. I'm John Fallon, new Group CFO. And I can honestly say, I'm delighted to have joined the DFS team. I'd like to start today by just sharing a brief summary of my reflections on the business so far. My first observations are more acknowledgment of the positive progress that Tim and the senior team have continued to make over the last few years, strengthening the overall customer proposition to be what is a clear market leader in sofas and upholstery. At the heart of the proposition, a genuinely high-quality products and exclusive brand partnerships, which are delivered through a market-leading omnichannel experience, all of which has been backed by a strong track record of innovation across both the online platform as well as investments in our showroom formats. For sure, there are more opportunities, and I'm encouraged by that, too. In particular, I can see relative upside for Sofology as we start to focus on using better customer data and digital marketing to improve that brand's proposition. And the group clearly also benefits from market-leading scale. At around 38% of the upholstery market, that's more than 3x the revenues of our next biggest competitor. That is already unlocking efficiencies and value for our customers that our competitors can't match. I believe we can leverage that scale further across our costs and our margins and have recently initiated a further detailed review of our cost base. It's also reassuring to find a business that is well invested in to support future growth. And as the market normalizes, I believe we're very well placed to deliver significant growth in revenues, profits and returns supported by our highly cash-generative model. In terms of new growth markets, homes, starting with beds and mattresses is a clear and compelling adjacent opportunity where we can build on our existing capabilities. And perhaps more than anything else, as I've reflected, I found myself coming back to the culture and the values of the company, which is one of the reasons I was attracted to the business. A lot of companies talk about culture, but in DFS, I feel it is a genuine special ingredient that run through the entire organization. The strong levels of engagement, collaboration and ambition. And I also believe that shows up in the quality of the customer experience in our showrooms and on our websites. So, lots to like and lots of opportunity to create further value. So, moving on to our financial performance for the first half and starting with an overview of the results. First thing to acknowledge is the consumer environment through the first half has continued to be weak and market demand has been relatively low. We estimate market order volumes were down by around 50% compared to pre-pandemic levels. As Tim mentioned earlier, in that context, the group has continued its track record of market share growth through the period, which has helped contribute to our revenue performance. Group revenue was up 9.4% compared to FY '19, which was the last full year prior to the pandemic, and it was down slightly year-on-year. Revenue in the period also included GBP 20 billion from the partial unwind of our elevated order bank at the start of the period. And adjusting for this, revenue growth would have been 5.3% versus FY '19. Underlying profit before tax and amortization of GBP 7.1 million was a decrease on last year, impacted by the lower revenues, inflationary cost increases and investments in future growth, most notably to support the growth in our beds and mattresses ranges. A stronger second quarter performance on order intake, which I'll come back to later, combined with our made-to-order lead times means that our end of half order bank remained elevated equivalent to around GBP 4 million of profit. We're expecting the order bank to normalize and to realize that profit in the second half. Full year profit delivery will be weighted to the second half supported by improvements in sales and profit margins in part as cost [indiscernible] begin to subside or in some cases, reverse. And more on that later. -- leverage stands at 1.7x, which is outside our target range of 0.5 to 1x. But we continue to operate with plenty of headroom on our covenants. I'll come back to our capital distribution policy and dividends later in the update. Looking at revenue performance then. Gross sales, which is based on orders delivered to our customers was 9.6% higher than FY '19, around 5.5% after removing the benefit of the elevated order bank I mentioned earlier. Digital sales participation remains strong at 24%. That's around 40% higher than the levels we were seeing before COVID, reinforcing the value of our omnichannel proposition. The sales growth compared to FY '19 was supported by average order value growth in the late teens, offsetting mid-single-digit declines in order volumes. -- both DFS and Sofology brands saw positive growth compared to FY '19. In DFS, it was encouraging to see beds and mattresses online sales growth of 70% year-on-year supported by marketing and logistics investments, together with new exclusive branded bed ranges. In Sofology, we've now added 15 new showrooms since FY '19, which is continuing to support total growth. The like-for-like sales performance in Sofology has remained below FY '19 levels after being disproportionately impacted by the supply chain delays across 2020 and 2021. However, since then, we've invested in our Sofology operations and service levels have now stabilized, leading the brand well placed to recover the lost ground. Finally, revenues, which are reported after the reduction of VAT and the cost of providing interest-free credit and warranties were 9.4% higher than FY '19. That's marginally lower than gross sales growth due to the rises in Bank of England interest rates, which we were able to partially offset by securing better rates with our financing partners. Before I move on to discuss margins, I want to share more on the trend we're seeing in our order intake performance. As we've described in previous updates, after a volatile FY '22, the first quarter of this financial year proved to be tougher than expected with low levels of market demand. However, the market did improve in the second quarter, and we improved at a faster rate, delivering quarter 2 order growth of 16.3% versus FY '19. That did leave our order bank elevated, as I mentioned earlier, GBP 4 million of profit will reverse in the second half. As you can see in the blue-shaded bar, we have seen that positive momentum continue through quarter 3 to date, supported by strong order intake levels across the important winter sale period. However, market outlook and consumer demand does remain uncertain. Over the last 2 weeks post winter sale, we've seen our order intake growth reduced to around 4% for FY '19. Delivery of our full year guidance assumes order growth returns to quarter 3 today average levels from Easter through to the end of the year. Overall, we're seeing that order growth trend though, translating into record market share performance, as you heard earlier from 10, up to 38% for the first half based on both our proprietary [ Barcel ] card deposit data and the read from global data. That compares to the last read at the end of FY '22 of 36%. We -- moving on to gross margin. Our gross margin for the half was 53.8% or 30 basis points year-on-year and up 190 basis points from the second half of FY '22, which we consider to be the low point in the current cycle. The year-on-year improvement came from a reduction in the prior year costs associated with port and Holly related disruption, together with increases to average order values as a result of range innovation and some retail price increases, all of which has more than offset the ongoing but now diminishing inflationary headwinds across our cost of goods and freight. Freight rates did remain high at $8,000 per container through most of calendar year 2022 before starting to reduce from October, which left the average rate across the first half, still higher year-on-year. Finally, on margin, interest rate credit costs, which are linked to the Bank of England base rate were contained to a year-on-year increase of GBP 6 million in the period, supported by favorable contract rates. Furthermore, to help mitigate the impact of base rate increases going forward. We recently reduced the maximum credit period to 36 months, which we believe remains a highly attractive customer offer. Still on gross margins. We remain focused on continuing to recover gross margin percent back towards historical average levels of 58%. That recovery is on track, supported by improvements we are reporting for the first half of this year and the additional improvements underway in the second half. We currently expect gross margins in the second half to average around 56%, supported by those lower freight rates in addition to further range optimization and some retail price increases. On freight rates for the calendar year 2023, we are now contracted at less than $2,000 for the year, which is broadly in line with pre-pandemic levels. We start to get the full benefit of those lower rates on inbound orders received in early March, and then the full annualized benefit will fall into FY '24 or supporting further margin progress next financial year. Separately, we're continuing to review our sourcing and manufacturing strategy to unlock new opportunities to leverage our scale and lower the cost of the ranges we buy from our suppliers, all of which gives confidence that gross margins of 58% as we exit FY '24 into FY '25 are a realistically achievable target for us. Moving on to operating costs. Operating costs in the period covering all the costs between gross margin and PBT increased from GBP 274.5 million, which represented 49.3% of revenues to GBP 285.8 million or 52.5% of revenues. That increase was driven by 4 main factors: firstly, ongoing inflationary headwinds across predominantly wages and logistics and supply chain-related costs. Secondly, and higher interest costs due to a combination of the rise in rates and the increased drawdown of our RCF facility. Thirdly, investments in new showrooms, warehouse capacity and our beds and mattresses proposition, all of which will support future growth in the future. Finally, the ending of prior year business rates relief, which added GBP 2 million to our costs year-on-year. Those increases were partially offset by year-on-year cost savings predominantly in our Sofa Delivery Company after completion of the integration of the DFS and Sofology and logistics operations. We've also seen a reduction in prior year costs associated with inbound supply chain disruption in FY '22. We Net bank debt increased to GBP 135.6 million from GBP 90 million at the end of last year. This was driven by the lower first half profits, working capital normalizing due to a reduction in the elevated order bank plus the share buybacks and dividends in respect of cash generation in the prior periods. Cash CapEx incurred in the period totaled GBP 19.6 million as we continue to invest to support our growth objectives. And this includes spend on 2 new Sofology showrooms as well as refits of a further 3 DFS showrooms and investments in beds and mattresses selling space is 6 showrooms. We also continue to invest in digital and data initiatives that will support future sales and cost efficiencies, and that's something that Tim will elaborate on further later. We continue to expect that for the full year, CapEx will be around GBP 35 million. Leverage at the end of the period was 1.7x outside our target range of 0.5x to 1x, which brings me on to capital distributions and dividend. First thing to say is that following a review of the existing capital distributions policy were today updating the policy to move to a simpler earnings per share cover-based calculation for ordinary dividends. That replaces the underlying adjusted cash flow-based calculation, which I now have the potential to be a little more opaque and harder to forecast. The EPS coverage defined by the updated policy is between 2.25x and 2.7x. Our net debt leverage target remains unchanged. We also intend to target special returns as and when leverage is projected to fall in stable.5x. Based on the new policy, the interim dividend will be 1.5p with a projected total ordinary dividend of 4.5p, and based on 2.5x cover and subject to delivery of our FY '23 profit guidance. For the avoidance of doubt, the projected ordinary dividend under the old policy would have been at a similar level, in fact, slightly lower than the 4.5p based on the midpoint of the 40% to 50% of underlying cash flow calculation. So, in terms of our outlook for next year and the medium term as well, the consumer outlook, as I started with and therefore market demand remains hard to forecast. Our FY '23 profit guidance of GBP 30 million to GBP 35 million reflects that and is in line with market consensus. Profit delivery will be weighted to the second half due to the stronger revenues, be unwind of the first half closing order bank and as we deliver on track improvements in gross margin and the cost base. Importantly, as we look to the future, our record market share leaves us well positioned to grow profits and deliver strong returns when market volumes start recovering as they will. We're focused on rebuilding our gross margins. We're undertaking a further review of our cost base, whilst at the same time, continuing to invest to support future growth. With that, I'll now pass back to Tim...

[Tim Stacey, executive]

Thanks, John. So, I'll now provide a brief update on our strategic progress. I'll start with our 3 pillars and then move on to the supporting platforms. So first, then our DFS pillar. This is the larger of the 2 core retail brands, and it's performed relatively well in the period, growing its market share significantly. Over the last few years, DFS has been successfully transitioning its proposition to appeal to a broader customer base through enhancements across its entire customer journey through a sector-leading innovation on marketing, continued product development and investment in our retail channels and our people. Our new marketing campaign called ‘Watch you thing?' has continued throughout 2022, shifting the focus away from price and offers to a colorful and engaging demonstration of the broad range of sofa styles that DFS has to offer. This campaign has contributed to driving record levels of brand connection scores. Our digital marketing efforts have been recognized by some renowned digital powerhouses. In fact, DFS have established a successful partnership with Meta that has recently proved that our campaigns not only drive online sales but have a halo impact in in-store sales too. Measurement shows meta-drove an 8% uplift in of off-line sales. This omnichannel activity positions us as one of Meta's most advanced retail partners in the sector. Our strategic range development continues at pace, and we've launched innovative models with hidden storage, heated seats and reclining memory functions, and these are performing really well and driving average order values. We continue on our mission to create circularity in our product development through our Grand Design collaboration, where we're using recycled fabrics and sustainable materials. We continue to invest in our showroom formats with our transformation program now rolled out across 50 locations. I'm pleased to report that we continue to see strong sales uplift of over 5% versus control and short payback periods of under 2 years on the most recently refurbished showrooms. Finally, on the DFS brand, we continue to refine our workforce optimization solution, which uses a number of data sources and AI to help ensure that we have the right number of showroom colleagues working at the right times of day and this has improved our in-store conversion. It's our belief that the DFS brand has never been in stronger health and is well set for further growth as and when the market returns to normal. Moving on to Sofology now. Sofology has become a household name following sustained marketing investments since our acquisition of the business in late 2017, using well-known celebrities in its adverts such as lannone Carter to help bring imagination to life, the campaign has helped contribute to Sofology achieving its highest ever levels of brand awareness. Sofology has also started to collaborate with TV stars such as the architect George Clark to create sustainable design-led ranges such as the GAIA pictured here. Now this adds to the growing number of sustainable-based ranges in its sustainable Edit collection, which feature fabrics made from recycled waste, fillings that are recycled or recyclable to support a circular approach to product development. We've also continued to integrate the brand into the group and develop shared platforms. The best example of this is the creation of the Sofa Delivery Company, which has enabled scale benefits and lower delivery costs for the group. Sofology is well placed to grow market share going forward. Moving on to the home pillar. We've made good progress in developing our strategy to grow our share of the home market. Now the first phase is to develop our proposition in the GBP 3 billion bets and mattress market as we target a 4 percentage market share. We launched our first ever beds advert, which increased awareness of our proposition, and we've been able to utilize our existing upholstery exclusive brand partnerships with the likes of French Connection, Grand Design, Jewels and Kathkidson to expand these offerings into upholster bed frames. We are focusing our efforts on developing the proposition through the DFS online channels, and our beds and mattress online order intake growth is up 70% year-on-year. We also use our showroom digital tools such as our Swish large-format screens and tablets to successfully sell home ranges through our showrooms. And we are trialing the use of some retail space to include a bed-and-mattress section. We expanded our partnership with our third-party provider to deliver not only our stocked products from our Milton Keynes distribution center, but also a drop-ship solution for beds and mattresses, which enables us to deliver at scale into this expanding product category. Having now established the supply chain foundations and developed the product proposition, we plan to accelerate our investment in marketing to drive awareness and growth in the beds and market-macro market focused on the digital channels. Now our 3 pillars are supported by our platforms. I'll just pick out some highlights before going into a bit more detail on technology and data. From a sourcing and manufacturing viewpoint, we've just recently completed an investment in our Doncaster manufacturing site to alter the layout and improve the production process and productivity levels. Following the group's growth in market share, we are revisiting our supplier mix with a view to evolving and optimizing it, and we're currently engaging with a number of new potential partners. ESG considerations will play a crucial part in the decision-making process going forward. As mentioned earlier, our logistics integration program is now complete with our Sofa Delivery Company distribution centers, now receiving and delivering orders for both retail brands driving cost savings but also customer service improvements. Finally, people and culture. The DFS Group has always been a people business, and we've developed our employee value proposition to ensure we remain an attractive employer to work for. Whilst ensuring that our pay levels are competitive, we also provide a number of other benefits, which include our recently launched subsidized private health offering, which is accessible to all of our workforce, support for menopause and men's health issues and free flu vaccinations. We sought to share best practice across the group to create consistency in service and increased efficiencies by integrating back-office support functions, such as finance, HR and technology, we believe there remains a further opportunity to generate additional synergies. Moving on to technology and data. We continue to develop our integrated retail intelligence system, or IRIS for short, which brings together over 35 different data sources to create one unified view of the customer. Now this solution incorporates machine learning and decision-making and process optimization, automation in order to gain insights across the whole customer journey, which we can then leverage to drive efficiencies and growth. Some highlights are as follows. So, in order to get the best possible return from our marketing investment, we've reviewed and overhauled our approach to customer segmentation to ensure that we have a consistent approach across our retail pillar brands. Using CACI Akorn demographic data, combined with research on attitudinal behaviors, it's enabling us to refine our proposition for each customer segment. And we're working with our media partners to create specific media profiles for each segment to aid smarter and better targeting. Now we're also in the process of mapping our new customer segmentation by postcode to align to store catchments, using retail sales data, we can then better understand where we under or over index in local markets. Over the last few years, we developed our intelligent lending platform or ILP, and we launched this in DFS last year. Now ILP speeds up the process and the likelihood of customers gaining the credit that is right for them and helps increase conversion at busy trading times in the showrooms. We're now rolling this out for Sofology in the coming year. We're also investing heavily in internal capability across both IT development as well as colleague training and starting with a data literacy program in the Sofa Delivery Company, and this will put us in a great position to exploit the ever-evolving data set. Now turning to ESG. We launched our ESG strategy in September 2020 with a strong focus on sustainability in the environment using our sofa cycle approach. Now a real highlight in half 1 has been the launch in Sofology of the Gaia range, which takes a completely circular approach to product innovation. This product supports flexibility from a customer point of view in terms of style, longevity through servicing as well as value retention in the raw materials that we use. Now we know we have a lot to do to develop this vision of circularity, but this type of innovation is a really good example that strengthens our belief that our net 0 ambition will be achievable in the long term. We're working collaboratively with our supplier partners as our transition plan to NetZero will be dependent on innovation across the entire value chain to create a low-carbon future for the industry as a whole. Moving on to colleagues. It's important to us that we attract and retain a diverse set of colleagues who feel welcome and valued. We've implemented specific diversity and inclusion related training courses and engagement events, and we are successfully embedding an everyone welcome mindset across the group. We've also launched our breakthrough driver school initiative, which offers warehouse colleagues and 3.5 tonne drivers, the opportunity to be trained to become 7.5-ton drivers. With over 90 colleagues enrolled and 50-plus successful graduates, this scheme is proving incredibly successful in terms of solving an operational challenge for us, but also providing a great career opportunity for newly qualified drivers. With regards to governance, last year, the Board introduced the responsible and sustainable business Committee, which is chaired by our Senior Independent Director, Alison Hutchinson. This committee is really helping us shape our approach and review our progress across all fronts of the SG. In the last 6 months, we've completed our climate scenario analysis to support our TCFD disclosures. And our focus in the next 12 months will be ensuring that our transition plans are fully reflected and costed into our strategy. So, to sum up then, I've been with the business for me 12 years now. I'm very privileged to be CEO for nearly 5 years. And stepping back from all of the short-term issues, I actually believe we're in the strongest position we've ever been in, in terms of our market share of the upholstery market. And we're going to come through this economic cycle in really good shape. DFS, as a brand is in really good shape, and the Sofology and Home areas offer great opportunities for further growth. I think we've got a strong operational grip of the business. We're seeing significant improvements in terms of efficiencies and customer service scores as all the supply chain disruption that we experienced in the past has gone. We're rebuilding gross margins, as John outlined, and we expect profits this year to be in line with consensus. I think in the medium term, we have real confidence that we're well placed to grow both revenues and profits. And to that end, I sort of wanted to conclude by highlighting this slide that we used last year in the Capital Markets Day in March 2022. We stand by our medium-term ambition to grow our revenues to GBP 1.4 billion and to operate at an 8% push PBT margin, generating post-tax free cash flows of 75% plus. Clearly, the last year also has been challenging for all sorts of external reasons, but we're confident the group is incredibly well placed to take advantage of more normal trading conditions as and when that happens, to leverage our strengths and our scale and generate strong returns and cash flows in the future. So, I want to conclude by saying a huge thank you to every single colleague in our business for their extraordinary efforts over this last few years and commitment to the cause. I'll now invite John Backup and we'll take some analyst questions...

[Michael Benedict, analyst]

Thank you. Good morning... Mike Benedict from Berenberg. I have 3, if that's okay. Firstly, can you remind us how big the beds and mattresses business is now as a percentage of sales, just so you can get a feel of how material about growth is for group numbers? Secondly, on interest-free credit. Can you remind us what the uptake has been given the new interest rate environment. I think it's previously been 2-ish. And have you seen peers move their credit buffer as well? And then lastly, John, your reflections at the start were largely positive, like you say. I guess is there anything you're looking to change or do differently in the business? That would be great.

[Tim Stacey, executive]

Yes. So, in terms of beds and mattresses or home overall for us, it's around about 5% of our total order intake in the year and bedmates is the big majority of that. So, our focus is through the online channels, particularly through DFS. And as we've now, as I said, with sort of the product proposition, the website is strong. We're now building our awareness through marketing. So, we can see some good trajectory for growth there. IFC, the uptake in IFC has settled back down to pretty much pre-pandemic levels, so 60% credit, 40% cash, kind of immediately post pandemic, that was kind of 50-50. So, I think that seems to have settled and we haven't seen any impact at all of the change of moving from 48 to 36 months other than obviously reduced subsidy costs for us as a business. Most of the peers have changed beforehand. So, we believe it's a very strong offer relatively. John reflections?

[John Fallon, executive]

Yes. I think as I said at the start, genuinely a lot to like coming in. And I mean it when I sort of say that the progress that's been made is a testament to what the team have done, particularly getting the proposition to where it's at. And some of the innovation, I think the investment in innovation in the front end really stands out. I think in terms of opportunities, I mentioned it a little bit. I think given the scale that we've got as a business, I feel that we've got opportunity to work that scale harder both in terms of our manufacturing and sourcing strategy so that we are buying as well as we possibly can, and that's something that's in our thinking. And Tim talked about it a little bit earlier as well. But equally, I think on the cost base as well. I think there are opportunities for us to similarly buy better, look at specifications, remove duplication. -- that just allow us to leverage that scale a little bit hard. Separate to that, I think that from a processes perspective, then we can simplify and centralize a lot of the back-office type processes. I talked a bit about the innovation at the front end. I don't think we've necessarily kept up at the back end. It's not a surprise given the evolution of the organization. That's a priority that I've got to continue to improve and make the business more efficient in that way too.

[Tim Stacey, executive]

Yes. I think we've got Jonathan from Peel Hunt online.

[Jonathan Pritchard, analyst]

Yes. A couple from May... Yes. Firstly, just in terms of DFS in the proposition, I think all things to all main strong at the value end, from at the quality end. Where are we on Sofology with that? And is there still some sort of change or evolution still ahead of us? And then secondly, I know the guidance is to hit consensus, but you have sort of narrowed the range down from 30% to 40% to 30%, 35% or slightly to the bottom end. What was behind that? I mean, obviously, you've had a couple of weeks where trading wasn't quite as strong. Is that what [indiscernible] Or is there something else that is perhaps tickles you down a little bit?

[Tim Stacey, executive]

Yes. Jonathan, I think, yes, in terms of Sofology, -- the cover is there's a lot of work happening in terms of the brand position and the product development. So I expect to see in the next sort of year, 18 months, the product is really moving forward in terms of innovation or some great new products lining up on the floor. So, I know that Emma and the team are working quite heavily on that. The marketing is working really well for us in terms of brand awareness. The in-store opportunities are strong. We've got 57 stores, and our plan would be over the medium term to get towards 70%. So, I think we've got growth opportunities there, and it's really about focusing on the product and making sure that we've got that clear water between DFS and Sofology, -- so that's probably where we're at, Jonathan. I think they've done a huge amount of fantastic work on the customer service and operational grip in us the last 18 months, and we're seeing some really good scores coming through from a customer point of view. I think in terms of the second question regarding the range, I mean, John can elaborate a little bit further. It's just literally we're kind of now 15 weeks out from our year-end. And as you get closer, you can start to see all the different moving parts coming together. But the last couple of weeks have been a little bit softer in terms of order intake. We'd expect that post the winter sales coming out of winter sale, which was incredibly strong for DFS. In fact, the best ever winter sale at DFS. -- you'd expect a bit of a dip down, but we are starting to see it normalize back to the trends that we've seen for the last 24, 25 weeks. It's just that as you add all the moving parts together, we're just getting a bit clearer about the range, that's all. So, nothing fundamental that we've seen in the consumer behavior in terms of a pattern change versus the last sort of 24, 25 weeks. Is that anything to add?

[John Fallon, executive]

Yes. I think it is just reflected in an additional bit of caution given proximity out to year and line of sight to everything that we have got, I don't think there's an expectation of a fundamental ongoing shift. We've seen a sustained period of time now from a consumer behavior and demand through quarter 2 and quarter 3 to date and think we move back towards Easter and customers have got reasons to shop into selling by again, should I say, then I think we'll see it return back on to the levels that we're seeing, that's what we're assuming.

[Andrew Wade, analyst]

Yes. Andy Wade from Jefferies. You mentioned in the presentation and you have indeed before that one of multiple reasons, but one of the contributors to your share gain has been the fact that you pass through inflation on a pound-for-pound basis, which has perhaps been more customer beneficial than some of your competitors have done. Do you see any potential for there to be a bit of pressure on your share position as you try to rebuild margin, maybe get a bit -- maybe get some of that back in price where competitors have already done it. It would be the first one.

[Tim Stacey, executive]

Yes. I think when you look at the evolution of the margin going forward, a lot of it is already baked in as a result of some of the impacts that are reversing. Obviously, pre the big standout on also some of the disruption costs. And yes, we've made some selective price increases along the way as well. They've not been material even more recently, not material, particularly in the low single digits. And I think in the round, the proposition for all the reasons we've talked about and described is the overall winning formula taken altogether, and we'd still retain that confidence in the proposition being a winning one in the context of the overall market. And that's not speaking for what everybody else may or may not choose to do. Yes. I mean we've seen the share gains accelerate through the half. So, if you look at September, October, it's grown. And so, I think even -- and we look, obviously, on a weekly basis about what all our competitors are doing, and we firmly believe we've got a very strong offer relatively. So, our target back in 2015 was to get to 40%, and nobody believed that we can do that. So, we're now standing here thinking, yes, we feel very confident we can maintain that and even grow it and be...

[Andrew Wade, analyst]

New target. The next one, I mean, you sort of touched on the answer to this already, but I'm going to ask it anyway. The Q2, Q3 run rate was about plus 16% -- you talked about the last few weeks -- last couple of weeks, a few weeks being around the plus 4%, but your budget is for it to return back to the sort of what gives you the confidence that it's going to step up back up from 4 to 16. And I appreciate you've partly answered it, but you've already started to see a bit of it.

[Tim Stacey, executive]

But... Yes, we will start to see it in certainly been a couple of weeks. We've got 24, 25 weeks of that sort of level on average of 16%. We know that the average order values relative to '19 are high teens. We're not seeing any change in consumer behavior in terms of footfall and web traffic, et cetera. I just think we're in that period where we come out of winter sale before Easter, which is a good timing for us this year. We've got an extra bank holiday as well. So, I think we've got lots of reasons to believe that the offer is strong. We've got good marketing and good offers through Easter. So, I think we're looking at that, and that's why we've kind of looked at the projections and come up with the numbers we've suggested today.

[Andrew Wade, analyst]

Okay. And then the last one, in the OpEx bridge there, you sort of pointed to GBP 12 million of efficiencies. I appreciate some of that sort of around non-repeated disruption last year, but sort of interested as to how much more we should be looking at on that and sort of going forward, you talk about the cost review in train.

[John Fallon, executive]

Yes. I think we pretty much just kicked that off. I mean when Tim and I both discussant said it hasn't got opportunity on a fresh look at the cost base. So, we're about 4 weeks into that review. So, at a stage where we're really analyzing all of our addressable cost base. We'll certainly look to bring back in September more detail to share in terms of both quantum and areas of opportunity. But I think if I kind of at this stage, look at where Key areas of opportunity are then I think group synergies and continuing on the journey of maximizing group synergies, which clearly we've done some of. I think GNFR, both in terms of supplier base, consolidating that removing duplication, reviewing cost price specification. There's plenty to go up in that area still. I think on property costs as well. The team has already done some really good work that will evolve over the next 2 to 3 years as we move through lease renewals. And then again, as I mentioned earlier, I think if you look at some of the operating models, there's still opportunities to simplify and automate things that we do at the back end of the business opposed to the front end that should naturally yield opportunities as well. But as I said, we'll come back in September and share more in terms of what that could look like, but I said our aspiration is to be at least enough to offset some of the future inflation pressures and hopefully start to reverse some of that too.

[Tim Stacey, executive]

Any more questions from the floor or online?

[Michael Benedict, analyst]

Just one quick follow-up. So, a delivery company. I guess what are your latest thoughts on making that available to third parties and if you did choose to do that, how much more investment would be required in it...

[Tim Stacey, executive]

Well, there's not a lot more investment. So, all of the infrastructure and the technology is all set up, so we can take more volume. We have been delivering on behalf of Sofa workshop as an independent brand in the past successfully. So, at this stage, Mike, we're -- we're not actively looking to sort of take on third parties, but it could be something we do in the future, and hence, why we set it up in that way. I think the team have done a tremendous job for all of the supply chain disruption in the last few years to do the integration at the same time and come out the other side, we're seeing really good performance in terms of value utilization, the NPS as well and Net Promoter Scores for customers. So, I think it's a great asset for the group and one we'd look to kind of exploit and develop going forward... Any more questions? Anything online or done? Okay. Well, thanks very much for coming along, battling through the train strikes, tube strikes, et cetera, and I appreciate that and to everybody online, and hopefully, see you soon. Thank you.