DFS enjoyed record profits last year as EBITDA rose 2.5% to £82m despite a fall in sales.
The furniture specialist recorded a 2.1% fall in sales to £624.7m in the year to July 28.
The retailer said sales increased by 6.6% in the second half of the year, recovering from a decrease of 10.3% in the first half.
DFS invested £5.9m in the year in new stores and expanding its UK manufacturing operations.
It said the group has “remained strongly cash generative” with free cash flow in the year of £36m. Net debt at the year-end was reduced to £159.6m from £182.2m in 2011.
The retailer opened its first store outside the UK in Dublin during the year, as well as taking its first step onto the high street with a new store on Tottenham Court Road. In total, 13 new shops were opened in the year and one has been opened since year-end in Stockport.
DFS chief executive Ian Filby said: “We are pleased to have delivered a good result for the year, despite the tough trading environment. As we expected, the improving trend in performance during the year continued in the fourth quarter.
“This performance benefited from a growing sales contribution from our new stores, which also began to contribute to profit. Improved margins over the year as a whole reflected the increase in our own manufacturing capacity and our drive to improve efficiency across the business, particularly through more cost-effective media buying.”