Investment Column: DFS depends on new stores

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There is only one problem with DFS Furniture according to Sir Graham Kirkham, the founder and executive chairman of this retailing phenomenon: it is too good to be true. Like all good jokes, this one carries the germ of truth within it.

Yesterday's interim figures to January, showing pre-tax profits up 24 per cent to pounds 18.7m, were as excellent as Sir Graham believed and higher than City expectations. But most of the increase in sales, which soared 44 per cent to pounds 126m, was propelled by new stores. Like-for-like growth through comparable stores grew by a meagre 3.3 per cent and Sir Graham said he had seen no sign of any great upturn in overall consumer spending.

This underlying figure may prove a cause for concern, especially with consumers almost certain to face higher interest rates immediately after the general election. But DFS is determined to protect itself by increasing its store openings in the South-east of the country.

It has created a Greater London bridgehead with three stores in New Malden, Sidcup and Croydon. It will supplement those by opening in Milton Keynes in August and Reading in October.

DFS had promised to open 15 to 20 stores in the three years from April 1995. It is now saying it will almost certainly exceed this figure.

Sir Graham insists that he operates a well-sprung machine that is built to withstand any prevailing commercial environment.

"DFS has never relied on a buoyant economy or a housing boom for its growth. Our success comes from winning market share," he booms.

That market share is currently 10 per cent, which leaves plenty of scope for expansion.

With strong cash flow to support expansion plans, there is room for both investment and more special dividends, such as the 10p a share paid last year.

Sir Graham is not ruling out further payments, even if the interim has been lifted a chunky 26 per cent to 3.9p.

Graville Davies, the stockbrokers, are pencilling in profits of pounds 38m for this year. That would put the shares, up 17p to 549.5p, on a forward multiple of 23, which looks high enough for Doncaster's finest furniture retailer.