Reporting a 35 per cent slump in first-half profits to pounds 12m, DFS said it had lowered prices to tempt in more shoppers. However, the markdown had a damaging effect on the value of like-for-like sales, which were down by 7.4 per cent in the period.
Underlying sales are still down by a similar amount in current trading, although Sir Graham Kirkham, the chairman, believes that lower interest rates might soon start to feed through to higher sales of sofas and other "big ticket" goods. "The people on the shop floor are reporting a better feeling. We think there is a bit more confidence out there," he said.
DFS moved to a more aggressive pricing policy a year ago while also reducing its reliance on interest-free credit. All this hit margins, which fell from 9.8 per cent to 8 per cent in the 12-month period.
DFS has also attempted to counter its image as a retailer of slightly frumpy, more traditional sofas. It has recruited new, younger buyers and the stores are stocking more modern, simpler designs. "We probably did get a bit too traditional," Sir Graham conceded.
The company will change some its television advertising to reflect the change. The irritating campaign using Jilly Foot and Tom Adams will be modified, and the pair will appear less often.
DFS shares have had a grim time. Despite rising 7p to 261p yesterday, they are way off their 1996 peak of 651.5p. But with 53 large stores the group has 13 per cent of the furnishings market, and a strong balance sheet with pounds 12m cash excluding the pounds 38m value-added tax refund currently being reviewed by the European courts.
On Investec Henderson Crosthwaite's full-year profit forecast of pounds 24.5m the shares trade on a below-sector forward multiple of 16. Given that the cycle may be on the turn, this looks reasonable value.