- Sales up in a flat market
- Gross margins increased
- Shares now yielding 5%
Against the background of a UK economy where companies selling non-essential goods are struggling – exemplified by The Body Shop appointing administrators – today’s interim results from homewares and furniture firm Dunelm (DNLM) suggest the firm has done a good job in tailoring its customer offer.
Not only were sales for the six months to December up on the previous year but the company managed to eke out a small increase in profit and declared another special dividend.
The shares, which have been range-bound between £10 and £11 for several months, eased 0.8% to £10.76.
‘HOME OF HOMES’
Given the uncertain consumer outlook, Dunelm has invested in improving its broad appeal to shoppers looking for homewares at a decent price in a market which – despite the demise of Wilko, one of its biggest competitors – still remains fiercely competitive.
As well as opening four new stores during the period, taking the total to what is still a modest total of 183 given the potential size of the UK market, the firm has spent on brand marketing as well as digitalizing the business and launching its ‘Home of Homes’ brand platform.
This has fed through into its results, with first-half sales up 4.5% to £872 million thanks to 4% growth in active customers and higher transaction numbers which led to a gain of 0.5% in market share from 7.1% to 7.6% against a flat sector.
The increase in sales was broad-based across price points and categories with London the fastest-growing area and 16 to 24-year olds the fastest-growing customer group which bodes well for future growth.
Just as pleasing, gross margins increased by 1.6% 52.7% as the firm held the line on pricing with good sell-through of its Christmas ranges which meant it ended the year with ‘comfortable’ stock levels.
Meanwhile, pre-tax profit rose 4.8% to £123 million despite higher costs from store openings and high levels of wage inflation which added £10 million to operating expenses.
In a sign of confidence in the outlook, the firm increased its interim dividend by 7% to 16p per share and announced a special dividend of 35p per share meaning the stock now offers a 5% yield for 2024.
EXPERT VIEWS
‘The highlight for us is that the group’s strengthening customer proposition is raising flags to signal future growth prospects, as KPIs (key performance indicators) improve’, said Peel Hunt’s retail team, referring to the increase in active customers, frequency of visits, online penetration and so on.
AJ Bell investment director Russ Mould described Dunelm’s first-half results as ‘impressive given the pressures on household budgets in the UK, suggesting the company is getting the balance right on pricing, quality and product’.
‘Having the right stock available at the right time for the right customer is key to being a successful retailer and is reflected in Dunelm continuing to capture market share’, added Mould.
‘All in all, the impression you get from Dunelm is that this is a company which really understands its market and knows how to capitalise on emerging trends through product innovation.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (Steven Frazer) own shares in AJ Bell.
