How can a business lose nearly £20 million on revenue of £28 million and yet remain a poster-child for excellence in home furnishings retail?

It most instances, the answer is: it can't.

Yet, for Sofa.com, it is worth taking a taking a step back, and looking at the bigger picture.

Of the £19.9 million loss, all of it — and more — relates to non-cash items (see related). Goodwill written down of £10.4 million, another £5.4 million for amortisation and depreciation, and £5.6 million for interest payments.

The interest is being added to loans from its owner but will not be actually paid in hard cash until CBPE, which invested in Sofa.com in 2015, realises its investment by either selling or floating the business.

Strip all that out and Sofa.com remains profitable. However, the direction of travel — with margins narrowing despite sales rising — is not so positive, and coincides with the expansion of its physical store network.

Operating profit at the trading arm totalled just over £600,000 in the year to February 28, 2017 and has been falling now for three years straight.

Sofa.com was at its most successful — returning pretax margins hovering around double-digits — when it was trading online and through a single London showroom.

Only Sofa.com is privy to data showing which of its channels are delivering growth and making a contribution to earnings. But from the outside, it appears that Sofa.com needs to get a bigger return out of the stores that have been opened — and continue to open — at towns, cities and provinces around the UK.

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