Shares in home furnishings purveyor Dunelm (DNLM) improved 2.2% to 844p on Thursday after the retailer said its re-opened online operations are coping with higher levels of demand than that seen before the coronavirus crisis.
Though its brick and mortar stores remain shuttered, as per government guidance, today’s business and liquidity update strongly suggests Dunelm will materially increase market share amid the coronavirus-driven disruption.
News that Dunelm is eligible for funding under the Covid Corporate Financing Facility, giving the cushions, quilts and kitchenware seller with even greater liquidity, provided investors with additional comfort.
ONLINE PLATFORM PERFORMS
Dunelm temporarily shut down all operations, including online, last month in order to reconfigure its warehouse and processes to create a safe working environment during the COVID-19 pandemic.
Having recently re-opened online under a phased restart, Dunelm’s web business is now fully operational. And the good news is that recent online online order levels were ‘significantly higher’ than those seen before the onset of coronavirus, when it was enjoying growth of around 30%.
During lockdown, housebound consumers’ attentions have turned to products for the home, while the array of products sold on the retailer’s new web platform has broadened materially. Dunelm even hopes to re-launch two-man delivery again next week.
LIQUIDITY SAFETY NET WIDENS
Dunelm also sought to allay any lingering fears over its liquidity today, flagging existing financing facilities of £175m, consisting of a committed revolving credit facility (RCF) of £165m and a £10m overdraft, with net debt a manageable £40m as at 11 April.
Reducing expenses and managing cash flows tightly, Dunelm’s executive management team have taken voluntary pay cuts and the company has also received confirmation from the Bank of England that it can access funding under the CCFF.
This gives management confidence that the retailer has ‘access to sufficient liquidity, even in the event of a prolonged store closure period. Currently, we would only anticipate the need to issue paper under the CCFF scheme in the event that our stores remain closed for a period greater than six months,’ added Dunelm.
THE ANALYSTS’ TAKE
‘We believe Dunelm will emerge from the crisis in a stronger market position, as competitors struggle to deal with the shutdown and potential summer working capital squeeze,’ commented Peel Hunt.
‘Dunelm’s online penetration is likely to take a leap forward, enabled by the group’s new platform and experience over recent weeks, which has proved how quickly the business can enact change,’ added the broker.
Shore Capital views this as a reassuring update from Dunelm, especially on the liquidity front. ‘Dunelm is a tightly managed business and the company has reacted to the Covid19 events in a decisive manner, drawing down its revolving credit facility in full and managing its cost base effectively. We are encouraged by the confident sentiment and believe that once normal trading resumes the company can continue to prosper.’
