Shares in homewares specialist Dunelm (DNLM) hit a new record high on Wednesday 12 February after the retailer delivered strong first half results and another earnings upgrade, despite uncertain consumer spending.
The stock jumped 5.7% to £12.69 and has now more than doubled in price since January 2019.
BY HOW MUCH DID EARNINGS INCREASE?
Chief executive Nick Wilkinson said the third quarter has started well and that the business expects full year profit before tax to be ‘slightly ahead’ of the top of the latest range of analyst expectations (£135m to £137m).
Results for the six months to 28 December 2019 showed a continuation of the positive trading momentum the homewares market leader has enjoyed under the guidance of chief executive Wilkinson.
Group revenue rose 6% to £585m, with like-for-like sales growth of 5.6% generated in the face of demanding comparatives.
Investors also warmed to the news pre-tax profit grew by 19.4% to £83.6m, aided by a 120 basis point improvement in gross margin to 51.5% driven by less discounting as well as sourcing gains.
Cash-generative, progressive dividend payer Dunelm has successfully launched a new digital platform which it hopes will help facilitate further growth.
During the half-year period, online sales grew 33% as Dunelm’s strong multi-channel business and click and collect proposition increased footfall to stores.
The CEO said Dunelm was monitoring the coronavirus outbreak and so far has not assumed any material disruption to its supply chain or any financial impact in the year.
READ MORE ABOUT DUNELM HERE
Shore Capital noted that the shares have had a great run and outperformed the wider retail sector in 2019. Nevertheless, the broker enthused: ‘Dunelm remains a well-managed business with a clear and well-executed strategy with good cost and stock controls and strong cash generation.
‘The company continues to win market share and is starting to leverage its scale in a highly fragmented market from John Lewis and others given their recent travails.’
AJ Bell investment director Russ Mould said it has been a ‘golden period’ for Dunelm. He added: ‘Half year results illustrate just how successful the company has been. It is generating more sales and profits and paying shareholders higher dividends. In a sign of retail power, it is managing to get customers to buy lots of stuff without having to resort to heavy discounting.
‘And for all the chatter about people no longer going to the shops, it reports positive footfall which suggests its stores still offer enough appeal to drag people out of bed to see the products in person.
‘A pick up in house prices in January should benefit Dunelm as it suggests stronger activity in the property market. Moving house is a good excuse to buy new bedding, curtains and furniture, all of which is the domain of Dunelm.
KEEP AN EYE ON ECONOMIC CONDITIONS
Mould said Dunelm’s new digital platform is making it easier to buy items online and also driving click and collect transactions.
‘The business is clearly on a roll yet it must be noted that Dunelm’s products aren’t everyday essentials that need regular replacement,’ he added.
‘Consumers experiencing more difficult economic conditions could easily get by without having to buy a new quilt or a new set of saucepans. Therefore deterioration in economic conditions could easily cause a nasty blow to the company.’
